NZ Reserve Bank rule changes and how they impact overseas investors.
From the outside looking in, the fact the Reserve Bank of New Zealand (RBNZ) have suspended the LVR (loan to value ratio) restrictions for 12 months, could be seen as a ‘free for all’ low-deposit opportunity.
We have fielded calls about 5% deposits for investors, and no deposit for home owners. This is certainly not the case and the taps aren't fully open in this regard.
The main reason the LVR restrictions have been suspended, is to ensure banks do not break the rules with their existing property portfolios, given properties are dropping in value and may break required LVR ratios; pushing banks over their lending limits under the restrictions.
The other benefit of this is that it allows the banks to continue to lend, should they wish, with less than 20% deposit for home owners. It is important to remember that there are the RBNZ rules and regardless of the rules, banks have their own policies, risk profiles, and businesses to run.
Given Covid-19 and the uncertain economic conditions, with potential mortgagee sales on the horizon, they are not going to loosen their requirements just because the RBNZ made this change.
In many instances banks are tightening up when it comes to deposit and servicing requirements, but some major banks are now enabling overseas investors to purchase existing residential property with a minimum of 20% deposit, rather than the previous 30% which is great news.
Another crucial thing to consider for ExPats abroad or qualifying overseas investors, is how your net income is scaled back. With the major banks, due to risk of exchange rate fluctuation, this can vary between 10%-30% with Australian income, and up to 40% or not at all with other currencies.
While main street banks' scaling policies might put a dent in your purchasing power, the good news is with our panel of lenders we have an option with Australian borrowers, scaled back to 0% and other currencies at only 10%.
The final part to consider when purchasing in NZ is setting up a bank account. With the major banks you must either visit NZ, or at least go into a local branch in Australia in some instances. Thankfully, we do have options again, if we place you with a non-major bank lender whereby you do not need to enter the country.
There are plenty of variables and options to consider, so don’t hesitate to reach out and connect if you would like to discuss your position in more detail.
Make sure you also register for our upcoming webinar on Friday, July 10th, 2020. Our expert panel will be covering everything from overseas investment rules relating to residential and commercial property, lending and legal as well accounting and taxation. Register for this webinar here.
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