In my latest video I explain the Reserve Bank of New Zealand announcement from today that in December they will consult about re-instating loan-to-value ratio (LVR) restrictions on high-risk lending with effect from 1 March 2021.
LVR restrictions are used to reduce the risks to financial stability from higher-risk lending. The restrictions were removed in May 2020 to best ensure credit could flow, and that they did not have an undue impact on the mortgage deferral scheme implemented in response to the COVID-19 pandemic.
“Circumstances in the lending market have since improved and we are now observing rapid growth in higher-risk investor lending. We will consult about re-instating the restrictions we had in place pre-COVID, which limited the amount of high-risk lending that banks could make,” Mr Bascand says.
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Investors looking purchase an investment properties are on notice, particularly those taking advantage of the current relaxation of the rules. Expect a buying frenzy from this segment of the market.
We’ll keep you posted with more updates again soon.
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Michael Anastasiadis – Mortgage Broker Wellington
TRANSCRIPTION OF VIDEO:
“Good afternoon, everybody. It’s Michael Anastasiadis here, mortgage broker, mortgage advisor from Bozinoff Mortgages Wellington coming to you live here from a cloudy day up here in the clouds at Newlands.
I’ve had a lot of phone calls today.
A lot of people asking me, “Hey, what does all this news about loan to value ratios mean that we’ve been hearing from the news?”
You’ll probably see it on the six o’clock news tonight that the Reserve Bank has announced today.
Today, the Reserve Bank has announced that they’re going to be looking to reinstate loan to value ratio rules come March next year.
A loan to value ratio means exactly that. The Reserve Bank puts restrictions on banks on how much they will let them lend out to someone.
Right now, if you’re buying your own property, you only require a 10% deposit. The loan to value ratio on that has a 90% loan to value ratio. That’s to buy your own home. If you want to buy an investment property, most of the banks … I’ll just wait for the plane to fly over.
Boy, it’s great to see more and more planes in the air. It’s showing you the economy is doing well.
If you want to buy an investment property, most banks let you have a 20% deposit. The loan to value ratio on that is a 80% LVR. Now, if some people don’t have 20% cash lying around, and most investors use their equity and their existing property portfolio to work out a loan to value ratio of 80% or under. That’s the formula that they’re using.
Today, the Reserve Bank has announced that they’re looking to reimpose loan to value ratios on investors. They haven’t mentioned first homebuyers because it would be a political nightmare if they announced something like that. Now we don’t know what the detail is. They’ve just started consultation and looking to reput them back next year.
But reading between the lines, if you’re an investor and you’ve got that 20% deposit or 20% equity, you got to buy now, because it looks like come March next year, those rules are going to change and it’ll be difficult for you.
What does that mean?
It means that investors are going to be out there now looking to buy stronger than ever before. When you got more people in the market motivated to buy a property, you watch supply and demand, prices will increase until their decision is made. Now, most investors have to do their maths.
They’ve got to make sure that they can afford to pay the mortgage, the rent, the insurance, sorry, mortgage, the rates, the insurance and other expenses. The rent’s got to be enough to cover that and the banks also want to make sure there’s a comfortable buffer because the Reserve Bank did say today that they’re more worried about the high-risk lending, those that are at the maximum.
Meaning that they’re worried that if the economy was to turn next year for worse than what it is now, they don’t want these people exposed and having to have mortgagee sales so effectively, that’s what it means.
For first time buyers, you still have the advantage over investors because you can afford to throw the kitchen sink at it. You can get 90% lending as long as you can service, have enough income to service that 90%. That’s what that means. For investors, it is going to get harder, which means easier for first homebuyers and yes, those investors with a good existing property portfolio where their properties are valued high and have low mortgages, they will be able to buy more. Those first time investors or investors with maybe their own home and another property will find that harder depending on their situation.
I just thought I’d share that video. Please do me a favor. If you’re enjoying these videos, press that like button, press that share button. The social media loves it when you do that and it helps me as well, get my message out there.
The last thing I will say is that I am starting to see a shift in the market. I’m starting to see prices start to plateau, meaning that they’re not going crazy as they were. They are starting to level out, which happens. They can’t keep going as high as they are forever. People don’t have those deposits, don’t have that equity and don’t have that never-ending income to be able to afford it.
What does that mean? It means now is the perfect time to buy, especially if you’re a first homeowner. If you’re an investor, that’s dependent on the current loan to value ratio rules. Now’s the time to buy.
There you are guys, if you’re finding this useful, like I said press that like button and press that share. If you know of anyone that needs to hear this content, tag them in the comments below and equally, if you’ve got any questions or want to know more, pick up the phone, give me a call. I’ll be more than happy to help you guys out.
Signing off for the evening, have a good night guys and may God keep blessing our beautiful country. Cheers.”