Article: Our House = Our Home

What’s Happening? with Carie TownleyWhat’s Happening? with Carie Townley

Effective from Thursday 21 July 2016, Banks have made changes to their lending policy to ensure they are positioned for the new restrictions, announced by the Reserve Bank on Tuesday.
The RBNZ are tightening the rules for Property Investors, with a requirement to have a maximum LVR of 60% nationwide.
The RBNZ has kept the LVR threshold for Owner Occupied the same at 80% LVR, but has replaced current regional volume limits (10% Auckland, 15% rest of NZ) with a nationwide limit of 10% for borrowers with less than 20% deposit.  We do of course still have access to Welcome Home Loans with a 10% deposit.

What is changing?
• All Property Investor applications will be at a maximum 60% LVR or higher if the
combined security position includes an Owner Occupied property.
• A Property Investor is any customer where their security includes an Investment
Property.
• Owner Occupied policy will remain the same but a 10% nationwide speed limit
will apply, rather than just 10% for Auckland and 15% elsewhere.
• There are no longer any regional distinctions between Auckland and the rest of
New Zealand.
• At this stage the banks intention is to honour any applications that have been
approved, but any changes to existing or expired applications and new limits will
apply.

The consultation period between banks and the RBNZ ends on 10 August. I’ll keep you updated with any further changes to Bank’s systems and processes.

Why has the Reserve Bank announced this change?
The RBNZ has indicated concern around the growth of Property Investment lending. To ensure financial stability in an unexpected downturn they have identified Property Investors as being a higher risk than Owner Occupied lending from overseas experiences during downturns. As such they are looking to mitigate any potential risk to New Zealand by requiring larger deposits thus improving serviceability.

They have taken the same approach with the changes to the speed limit for 80% LVR for Owner Occupied lending, although this is not perceived as a large risk compared to Property Investors and as such have not amended the speed limit as drastically as the changes to Property Investor LVR’s.

They have also indicated that they will look at further tools such as higher capital ratios and the potential introduction of Loan to Income limits.

One NZ Herald report on the 11th May advised; Government will not rule out new restrictions on house-buying which are tied to a buyer’s income.

The Reserve Bank’s governor Graeme Wheeler said in this report that debt-to-income restrictions could be one of the potential responses to rising house prices, which he identified as a risk to New Zealand’s economy.

The restriction was used in the United Kingdom, where most buyers could not get a mortgage higher than 4.5 times their annual income.

Prime Minister John Key would not rule out debt-to-income limits.

“We don’t want to see a bubble emerging in the housing market,” he said.

“And potentially if there are recommendations the Government is not ruling out adopting those recommendations or allowing the Reserve Bank to do it.

“We’ve already done that before with [loan to value] ratios and there are other options.”
The Labour Party warned that such a policy would create yet another hurdle for first-home buyers.

Mr Key said he would not want to lock people out of the housing market.
But he added: “One of the ways to make sure they can get into the housing market is to ensure that the rate of increase isn’t too fast for too long.”

For more information, please refer to RBNZ’s Consultation Paper, available at http://www.rbnz.govt.nz/news/2016/07/reserve-bank-consults-on-new-nationwide-investor-lvr-restrictions

Other recent changes included; No lending to foreign investors purchasing within NZ, cash only.
Minimum deposit required for Kiwi’s, Ozzies, or NZ Residents living overseas and on overseas income will require a minimum deposit of 30% and the banks will accept 70% of their income for servicing at best case.  As always, conditions apply!!

For a personal mortgage reduction analysis to identify the strategies that are in your best interest, contact Carie today on 0275 228 940,
email .(JavaScript must be enabled to view this email address).


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