Reserve bank’s announcement 19/07/2016
40 deposit restrictions for investors & further restrictions for first home buyers proposed by RBNZ
The proposed changes announced on Tuesday has said no more than 5 percent of bank lending to residential property investors across New Zealand would be permitted with an LVR of greater than 60 percent. This will not only affect investment purchases in Auckland but the policy is Nationwide
The Reserve bank has set a date of the 1st of September but their expectation is for banks to implement it immediately. We are already seeing the main banks make changes in accordance with this as they also assess their current book of residential property investors.
These new proposed rules are being urgently introduced in an attempt to slow down the rapidly increasing property values which has now been seen well outside Auckland. This has been fuelled by a combination of a severe property shortage at a time where NZ has experienced strong internal migration and a slowdown of Kiwis going overseas. Investors have also had the luxury of record low interest rates.
2 key changes proposed:
- Apply a single speed limit for all investor lending in New Zealand, permitting no more than 5 percent of lending at an LVR greater than 60% LVR
- Apply a single speed limit for all owner-occupier lending, permitting no more than 10 percent of commitments with an LVR of greater than 80%
NB: New builds are still exempt, so this and so are major non-routine repairs of dwellings
What effect do you think it will have on the property market?
Here are some thoughts… It may take a while to see what the results are.
- Less finance available for first home buyers
- Less investor in the market place may lead to listing days to sell lengthening.
- Investors moving to lower priced properties needing less deposit – taking up stock for first home buyers or this change may make the market place easier for home buyers provided they have the funding.
- Investment opportunities available to those with sufficient equity.
- Some Investors will need to look for opportunities to create equity and be creative.
We still have access to Resimac and other non-bank lenders who are exempt from these rules and can still provide 80% lending for property investors and a solution for first home buyers.
For property investors that are set up with a multi-bank structure this will be in your favour.
If your owner occupied property is cross secured with your investment properties and you sell your primary home again it is likely new LVR rules will be applied which may leave you short for your new purchase.
This is why where possible we advise a multi-bank structure. Call us to have your portfolio assessed.
Seek professional advice
Make sure you seek advice from us before you go unconditional on any property you plan to sell as the banks are likely to impose the New LVR rules on any remaining investment portfolio
The Reserve Bank will continue to explore whether additional macro-prudential measures may be necessary to mitigate growing risks around the housing market. Possible future measures could include a limit on high debt-to-income lending and/or additional capital overlays.