Recent new restrictions introduced by the Reserve Bank have been put in place in an attempt to put a lid on New Zealand’s spiraling property prices. The main outcome of this is that new loan to value ratios (LVRs) have been introduced.
So how does this affect Investors and Home Buyers?
- Restrictions for investor lending have been extended from Auckland to nationwide.
- Banks will be forced to require a 40 per cent deposit – up from 30 per cent – for at least 95 per cent of the loans they make in this area.
- Restrictions for owner-occupier lending extended from Auckland to nationwide.
- Required deposit level remains at 20 per cent for at least 90 per cent of bank lending.
- As under the previous LVR rules there are some exceptions the above, loans to construct new dwellings would continue to be exempt.
So what should you do?
With the Reserve bank intervening to try and cool the market now may be a good time to sit back and take stock of what you do have and get a few financial housekeeping items in order. Things such as reconsidering loan structures, looking at where your current interest rates are sitting and if you are on a floating rate now may be the right time to fix etc.
You may also want to assess your gearing. For example if you are very highly geared and you do sell and want to re-buy, you may not be able to as you may no longer meet the new LVR criteria. At M&H we have heard of cases where investors have sold thinking they are going to re-purchase but now with the new LVR rules they are simply unable to and have been forced to reduce their investment portfolios.
Basically it’s a matter of looking at what you want out of your investments long term and whether you need to make any changes now. Then just getting everything set up correctly to weather any potential future storms.
Sitting down with your trusted advisor to discuss these issues is never a bad idea. You know where we are, as always our experienced team would be happy to help.