This week we have seen some good news for first home buyers with The Reserve Bank making some small adjustments to the loan to value rules (LVR rules) that have been restricting banks lending to those people that have struggled to save a big enough deposit.
The general rule was banks were looking for people with a deposit of 20% or more.
In Auckland with the increasing house prices that has made in extremely hard for many first home buyers who have been trying to get onto the property ladder.
Read the announcement here: CLICK HERE
Why Were LVR Restrictions Introduced?
The LVR policies were introduced in 2013 as a temporary measure to address financial stability risks arising from rapid house price inflation and increasing household debt.
At the time they were originally introduced the share of banks’ mortgage portfolios where the lending was above 80% of the value had steadily increased to 21%, “posing a risk” to financial stability. Consider this another way, around a third of new loans being originated had borrowing at levels above 80%.
Before introducing the LVR policies, The Reserve Bank asked the major banks to curb the low deposit lending that they were doing and warned that they could impose some restrictions if things did not change. At the time in early 2013 the aim was to limit the banks ability to provide low deposit (under 20% deposit) mortgages to 15% of the banks new lending, but as the banks appeared to make no effort to control their lending, The Reserve Bank stepped in and placed a harder restriction only allowing the banks to lend out 10% of the banks new lending to those people with less than a 20% deposit.
There were a few exceptions, including the Government backed Welcome Home Loans and finance for new homes.
What Does This Mean To First Home Buyers?
The changes to the LVR rules mean that the banks can now provide more lending to those buyers with less than 20% deposit.
Currently and until January 2018 the banks are restricted to 10% of the banks new lending being done where there is less than 20% deposit, but for January 2018 this increases to allow the banks to provide 15% of the new lending to those people with low deposits.
Some people are saying that this is only providing a small increase of 5% but an increase from 10% to 15% actually allows for 50% more first home buyers to qualify.
50% is a huge increase!
You can read more and keep up to date on the Kiwi First Home Buyers Facebook Group.
Expect House Prices To Increase
Of course, by providing first home loans to more buyers there will be more pressure on those houses priced for first home buyers.
We are talking about a lot more people being in a position to buy a first home due to the banks being able to offer lower deposits and that extra demand will see pressure on prices to increase.
This does not come into being until January, so we expect there will be a little rush of people trying to buy homes before Christmas – before people realise that they will now qualify for a home loan. This is of course assuming that the banks decide to relax their own rules and lend more to first home buyers again.
So while this is good news for first home buyers, it is also probable going to mean we will inevitability see house prices increasing again.
