Since the introduction of the bigger deposit requirement for property investors we have fielded a number of questions about the new build exemption and how it applies to a property investor.
It is confusing… there are enough other concerns when building, so lets try and make the finance the easy part.
There are two sets of rules;
- The official rules set by The Reserve Bank
- Each individual banks set of rules
To get finance approved for a new build you need to fit within both sets of rules and this is why so many people are getting confused with the mixed messages, and this is why we thought we should provide a little more detail.
The LVR Rules For Property Investors
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% which means a property investors will need a 40% deposit.
There is an exemption that applies to the construction of new dwellings yet to be built or at an early stage of construction.
This exemption provides support for an increase in the supply of housing which is an important part of reducing house price pressures arising from supply shortages.
Do All Banks Offer Low Deposit Lending To Property Investors?
While there is an exemption that applies to the construction of new dwellings and it allows for property investors, the banks also apply their own lending criteria to construction loans and may set their own maximum LVR limits.
The Reserve Bank expects banks to act prudently in this area, but ultimately this is a decision made by the individual banks and for this reason there will be different interpretations depending on which bank you speak with.
In short, not all banks will offer low deposit lending to property investors.
Each Bank Will Look At Things Differently
Unfortunately many people will approach their bank or speak with an inexperienced mortgage broker and end up getting the wrong advice. The advice might suggest that they cannot get more than 60% lending if they are building a new investment property and while that might be true with some banks, it is certainly not the case with all banks.
As professional mortgage brokers it is our role to know how the different banks approach various scenarios and we know that you can get low deposit investment loans when you are building a new house, and we also know how the building process and how to prepare a loan application to get the best results.
Of course getting the right finance for building is where mortgage brokers can help, but you also need to ensure that you get the right investment property to suit you and your budget.
Let’s look at some of the banks;
ANZ – they do not really want this business. The bank has made a decision not to offer finance at all for building within new suburbs but they say they will consider financing a build on a section within an existing suburb or where someone has subdivided a section.
ASB Bank – they will go anywhere up to 95% on new builds for both owner occupier and investment properties.
BNZ – they will let you borrow up to 90% for both a home or an investment property. The BNZ have a few different rules for new builds too.
Co-Operative Bank – they will go to a maximum of 80% for an investment property and will go over that for an owner-occupier.
Sovereign Home Loans – while technically they are not a bank, due to the link with ASB Bank they use a similar criteria. They do not treat owner occupier and investment properties the same and will allow borrowing of up to 90% and sometimes slightly more on both.
TSB Bank – they are currently reviewing the criteria, but at this stage they will go to a maximum of 80% for an investment property and will go over that for an owner-occupier.
Westpac – they do treat new builds differently and will allow up to 90% for owner occupier properties but reduce this to 80% for investment properties.
While this information was accurate when we published this, it is always a good idea to check with your mortgage broker before relying on this as this policy has just been announced and is therefore subject to change.
Changes Can Have An Impact
You need to always be careful with any pre-approved loans as things can change quite suddenly and while you may have been pre-approved a few weeks ago you may now be in a situation where your approval is no longer valid.
As mortgage brokers we have already seen this and the new bank policies have not even been in-force for a week.
The bigger deposit requirement for property investors have been introduced, but we expect that more changes and therefore more complexity will see people looking for professional mortgage brokers.
