90% mortgage lending is possible again!
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 $70,000 to purchase a $350,000 home.
Fortunately, on 1 January this year 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 10% to a maximum of 15% 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 in 2018, 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.
Nathan Miglani Mortgage Adviser
M 021 021 20555 T 03 343 6508
A Level 3, 575 Wairakei Road, Burnside, Christchurch 8053