Not so long ago, the LVR (Loan to Value Ratio) restrictions imposed by the Reserve Bank of New Zealand were really putting limits on mortgage finance, with 20% deposit required (except for the purchase of a brand-new property). That was tough, especially for first-home buyers, who found themselves needing a deposit of $80,000 to purchase a $400,000 home.
Fortunately, the Reserve Bank relaxed the LVR restrictions slightly, enabling the amount of each bank’s new mortgage lending to owner-occupiers with LVRs of more than 80% to rise from 15% to a maximum of 20% of total lending. What this means, in plain English, is that the banks have more funds available for lending to low-deposit borrowers.
Although a 5% difference might not sound like much, it has generated a lot of first-home buyer activity in the New Zealand property market and, most importantly, given first-home buyers more options. In 2017, before this change came into effect, brand-new properties were exempt from the LVR restriction and this had the effect of steering first-home buyers into brand-new properties – in many cases meaning that they were actually borrowing more in order to get into a pricier new home, simply because the LVR restriction made it harder to get lending for a cheaper existing dwelling. Clearly not the original intention of the LVR restriction, but a clear trend in 2017 nonetheless.
With a relaxing of the LVR restriction, first-home buyers now have a greater possibility of securing lending for an existing home, even with a low deposit, and that has generated greater activity in the market. A good thing for both buyers and those hoping to sell! Buyers will still require at least 10% deposit, but with half of this able to come from KiwiSaver and/or a HomeStart grant (banks need to see at least 5% genuine savings), buying a first home has suddenly become a lot more achievable in recent months.
As a mortgage broker working full time in Christchurch, I see a great level of activity and a very busy market in 2019.