What is an LVR, and what does it mean for me?
All through the media lately we are seeing stories pop up about the LVR, or Loan to Value Ratio rules. Put simply, the loan to value ratio is a way of measuring the amount of money that a bank will lend to you against a mortgaged property in comparison to the total value of the property.
Typically people who are borrowing a mortgage of more than 80% are stretching their financial resources.
How will the new the LVR rules affect me?
Today, the Reserve Bank has confirmed that these rules on loan to value ratios are being tightened on residential property buyers throughout New Zealand. These new rules will come into effect from 1st October 2016, however be prepared that many banks have started following the new restrictions already.
If you are a property investor: you will generally need a 40% deposit for a mortgage loan.
If you are an owner occupier (live in the property): you will generally need a 20% deposit for a mortgage loan.
I say generally because in both cases, banks are allowed to issue a small number of loans to people with smaller deposits. For owner occupied properties this will account for 10% of the bank’s total lending, for all of New Zealand. For residential property investors this accounts for 5% of the bank’s total lending, for all of New Zealand.
People who include their owner occupied home in a portfolio of mortgaged properties are able to borrow up to 80% of the value of that home and 60% of the value of their investment properties.
Is this forever?
Short answer, no but the restrictions are temporary for an unforeseen amount of time. The Reserve Bank monitors changes throughout the housing market, financial system and economy and takes action when necessary to support the stability of the New Zealand financial system. Once the risks that the housing market poses to our finiancial stablity are sufficiently decreased, the Reserve Bank will lift the restrictions.
“Weigh-up the personal pros and cons of your situation to figure out the best option for you.”
Chelsea Kennedy
Sales Consultant at Harcourts Beckenham.
Chelsea can offer advice to help you decide what the best options are for you and assist with any of your real estate needs.
If you want to know what your property is worth in the current market, call me today to schedule your free, no obligation property appraisal.
0279398814
chelsea.kennedy@harcourts.co.nz
