If you’ve been looking to get into the property market with your first home, you may have been hearing a lot about ‘loan-to-value ratios’ and the current restrictions being placed on them.
Young New Zealanders trying to purchase their first home may be finding it particularly difficult under the loan-to-value ration restrictions. As a first time buyer, you may not have a lot of money to put down as a deposit, meaning the loan-to-value you need may be quite high.
However, there are alternatives available to help you take your first steps on the property ladder.
Let’s look at exactly what loan-to-value ratios are, how they are being restricted, and what solutions you can look at to secure your first home loan.
What Exactly Are Loan-to-Value Ratios?
A loan-to-value ratio is a measure of how much a bank lends against mortgaged property, compared to the value of that property.
Borrowers with loan-to-value ratios of more than 80 percent (less than 20 percent deposit) are often stretching their financial resources. They are considered more vulnerable to an economic or financial shock, such as a recession or an increase in interest rates.
When we talk about high loan-to-value ratio lending, we are generally referring to someone with less than a 20 percent deposit, or a loan-to-value ratio of greater than 80 percent. This is considered a ‘low deposit’ loan.
The current restrictions in place are a form of speed limit on the banks. They constrain the amount of low deposit / high loan-to-value ratio lending that the banks can make overall.
What Do Loan-to-Value Ratio Restrictions Mean for First Home Buyers?
Low-deposit first homebuyers may be particularly affected by current loan-to-value ratio restrictions.
If your deposit is less than 20 percent, it will be considered low deposit. It will be then up to your bank to decide whether it is prepared to lend to you, if it has the capacity under the reserve bank restrictions. For mos people 20% depooti is the norm and banks are very fussy with low deposit applications.
What Can I Do if My Home Loan Has Been Rejected by the Banks?
If your bank, or any bank, decides to reject your home loan application, don’t panic. Thankfully, there are alternative options to get you on the property ladder, especially if you do not have the 20% deposit. iLender has great options, enquire today.
Experienced mortgage brokers can provide you with solutions for your first home loan, even if you’ve been considered as low deposit.
For New Zealand customers, iLender has great mortgages for first homebuyers with less than 20% deposit.
The iLender team specialise in finding home loan solutions for more difficult mortgages, such as low deposit first homebuyers and non-bank lending. Call today to speak to a home loan expert about your situation – call 0800 LENDER (0800 536 3370800 536 337) or contact us online.