Are the new lending restrictions announced today finalised?
The NZ Herald today has announced that The Reserve Bank Governor Graeme Wheeler has outlined the new rules and told banks they will be expected to act immediately in an attempt to put a lid on New Zealand’s spiraling property prices.
On The Reserve Bank website today it was announced that a consultation paper has been released proposing changes to loan-to-value restrictions (LVRs) to further mitigate risks to financial stability arising from the current boom in house prices. The consultation concludes on 10th August and then proposed new restrictions would take effect on 1 September 2016.
What we do know is that when announcements like this are made the new restrictions will almost certainly be implemented but in the meantime it sounds like the Reserve Bank wants banks to “observe the spirit of the new restrictions” in the lead-up to the new policy.
The question is when will the banks adopt this new proposed policy?
Why These Changes Are Being Introduced
Over recent months there has been a lot of focus on house prices especially in Auckland, but more recently other areas have been noted for escalating house prices. For many economists the concern is the “what if” there has been a housing bubble created, and “what if” that bubble bursts.
Recent analysis has highlighted that there is a risk to the financial system if there was to be a sharp decline in house prices which could be triggered if economic activity declines.
Property investors have been identified as rising from 28% of mortgage lending to 36% over the past 18-months and Reserve Bank Governor Graeme Wheeler said “investor lending has been increasing rapidly and is a significant contributing factor to the current market strength” and so this has been a target.
Looking At The Proposed New Restrictions
Under the proposed new restrictions:
- No more than 5% of bank lending to residential property investors across New Zealand would be permitted with an LVR of greater than 60% (deposit of less than 40%) where currently investors can borrow up to 70% in Auckland and up to 80% in the rest of the country.
- No more than 10% of lending to owner-occupiers across New Zealand would be permitted with an LVR of greater than 80% (i.e. a deposit of less than 20%) where currently the banks can do up to 20% of the new lending to owner-occupiers with less than a 20% deposit.
The point of these new lending restrictions is to make it harder for people to buy investment properties and for owner-occupiers to get low deposit loans, and by doing so this is hoped to reduce demand for properties and therefore remove some demand which has been pushing up the house prices.
It is understood that;
- Loans that are exempt from the existing LVR restrictions, including loans to construct new dwellings, would continue to be exempt.
- Non-bank lenders are not captured under these rules.
Mortgage Brokers Can Provide Good Advice
With all the changes taking place it is going to make getting finance on properties more complex and therefore good financial advice will often be needed.
At The Mortgage Supply Company we pride ourselves on ensuring that we are keeping up to date with the new lending rules and the various bank policies with the different banks and other lenders so we can pass on the best advice to our clients.
The Mortgage Supply team is very supportive of each other and this is a key reason we joined with them.
Of course we have to work within the rules!
An advantage that we have over the banks and many mortgage brokers is (1) the ability to think outside the box, (2) the desire to design the right lending arrangements which can only be done with (3) the choice of lenders (banks and non-bank lenders) that we can work with.
We even have non-bank lenders that are still able to offer low deposit property investment loans.
For common sense advice, CONTACT US TODAY
Phone: 0800 100 939
