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We have a guest author for this week's blog. Experienced lender Stephanie Murray from Stephanie Murray Mortgages tells us what we need to know about the new lending rules.
Over the last six weeks there has been some significant changes that will affect both first home buyers and investors.
The first one is LVR restrictions.
Now many might say “what is LVR?"
To keep this simple – LVR is simply loan to value ratio. This means the amount of lending (mortgage) you have versus the current market value of your house and is expressed as a percentage. This means you “own” a percentage of the property and the bank “owns” the rest!
The role of the Reserve Bank is to govern the trading banks. What this means is that the trading banks have to comply with the rules set down to them.
As of 1 October 2016 the Reserve Bank has announced that trading banks have to lower the amount of lending they do above a certain percentage.
What this means is different for each individual.
For owner occupied properties the banks are now only allowed to lend over 80% to 10% of their total lending. This is now across the whole of New Zealand as previously outside of Auckland this cap was at 15%.
This means that more people will need 20% deposit than previously as the banks will have less to lend out at this level.
Purchasing investment properties has changed also. Banks are now only allowed to lend over 60% of a property's value to 5% of their total lending.
As a result of this most people will need 40% deposit to purchase a rental property.
We all want to know “what does this mean for me?”
If you are a first home buyer it means you may need to shop around a few different banks to see who will lend over 80% if you have less than a 20% deposit. This may have a lot to do with how much that particular bank has lent out at the time.
There are other options like taking a guarantee from your parents' property to make up the shortfall so you then have 20% deposit.
There is also the option to build a home. New homes being constructed are exempt from the LVR restrictions and therefore most banks' credit policies will allow more loans over 80% for this purpose.
If you are an investor you will likely need 40% deposit.
This however does not have to be “cash” and can in fact be the equity that you already have in your existing owner occupied property or other investment properties.
The same thing applies if you wish to construct properties for rental investment – this is exempt of the new rules.
As with everything knowledge is power. At Stephanie Murray Mortgages we can find the right solution for your individual needs. We go to all the major banks and lenders to find you the best rate. Our team, based in Wellington and New Plymouth, will walk you through the process and at absolutely no cost to you. Call Stephanie Murray Mortgages on 0800 33 00 22 for a no obligation, free consultation. For more information visit www.stephaniemurray.mortgage.
Our next blog will be about the changes to Kiwisaver and how this can help you get in to a first home sooner.
Disclaimer: The information on this page is general information only and must not be relied on as legal advice. A disclosure statement is available on request or at www.stephaniemurray.mortgage. Please note Legal Beagle is not a law firm or a substitute for a law firm. We are unable to provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defences, options, selection of legal documents or strategies.
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