Changes to LVR Restrictions
Changes to LVR Restrictions
As previously posted more changes were in the air and here they are.
On Tuesday, the Reserve Bank of New Zealand (RBNZ) proposed changes on loan-to-value ratio (LVR) restrictions. The proposed changes limit lending to residential property investors across New Zealand to those with an LVR greater than 60%, and lending to owner-occupiers across New Zealand to those with an LVR greater than 80%. Loans currently exempt from LVR restrictions will continue to be exempt, ie land and build loans.
Banks will be required to work within a 5% cap of banks overall lending portfolio to investors >60% LVR and within a 10% cap for owner occupiers >80% (down from 15%.)
Note that at this point until banks understand where they are regarding 5% cap there is no investment lending available >60% LVR.
Land and New Build
Land and build exemption still applies therefore >80% LVR for owner occupier and 80% LVR for investors is still available.
The new Combined Collateral Exemption (CCE)
• Under the new LVR restrictions, a maximum LVR of 60% usually applies for residential investment lending.
• If the Combined Collateral Exemption (CCE) applies however, we may be able to lend to a group LVR between 60% and 80%.
• For the CCE to apply, the lending must be secured by both residential investment property and owner-occupied property.
While the changes won’t officially take effect until 1 September, the RBNZ has asked all banks to observe the spirit of the new restrictions.
Effective immediately, major banks will no longer conditionally approve lending for investors nationwide with an LVR above 60% for existing property.
Owner-occupier lending is business as usual at this stage.
The consultation period between banks and the RBNZ ends on 10 August.
Why has the Reserve Bank announced this change?
The RBNZ has indicated concern around the growth of Property Investment lending. To ensure financial stability in an unexpected downturn they have identified Property Investors as being a higher risk than Owner Occupied lending from overseas experiences during downturns. As such they are looking to mitigate any potential risk to New Zealand by requiring larger deposits thus improving serviceability.
They have taken the same approach with the changes to the speed limit for >80% LVR for Owner Occupied lending, although this is not perceived as a large risk compared to Property Investors and as such have not amended the speed limit as drastically as the changes to Property Investor LVR’s.
They have also indicated that they will look at further tools such as higher capital ratios and the potential introduction of Loan to Income limits.
As a mortgage adviser we have alternative options as the legislations applies only to the major banks. This is all on a case by case basis.
With all of the banks portfolios varying in exposure at any given time always ensure you work with us as timing and the inside knowledge of where each lenders portfolio and policy is at any given time is crucial.
Do not hesitate to call us to discuss further as its important to work with us to assist in navigating you through the ever changing landscape which is finance.