Reserve Bank of New Zealand Drops Loan-to-Value Ratio Restrictions for Mortgage Lending

Reserve Bank of New Zealand Drops Loan-to-Value Ratio Restrictions for Mortgage Lending
Industry News
December 11, 2018

For anyone looking to buy their first investment property, saving up for the deposit can be one of the biggest hurdles along the way. With a minimum deposit of 35% previous required for investor purchases, this can be a common roadblock preventing many from entering the market. With the Reserve Bank of New Zealand stating that “Prudent lending standards are important for the long-term health of the banking system and the economy”, banks were restricted by protocol in approval of mortgage lending.Fortunately, it was recently announced by the authority that the minimum deposit requirement for investment purchases has dropped to 30%, a massive decrease for investors and a huge positive for those looking to buy a property. This change comes as risks to the country’s financial system have eased. Potential investors should look at this time as an optimum opportunity to get into property investment as a multitude of positive factors has contributed to this change.

House Prices Have Slowed in Growth (Particularly in Auckland)

New Zealand house prices soared over the past decade and recent years saw some of the fastest growth in history. This rapid growth was cause for concern for the Reserve Bank of New Zealand and led to a restriction being placed on banks on the amount they are able to lend back in 2013. These restrictions remained in place up until recently as the market rates stabilised. According to the Reserve Bank, “recent slower mortgage lending growth has reduced financial risk somewhat”.

Reduced Risk Leads to More Leniency

With reduced risk, more leniency has been allowed in terms of what’s acceptable for banks to lend on mortgages. This is what’s called banks’ LVR restrictions for mortgage lending. While banks are urged to continue practising caution in responsible lending, restrictions have eased and it is now easier for investors to seek loans for the purpose of purchasing an investment property. LVR restrictions were put in place to minimise the chance of at-risk lenders of losing their homes. This leniency indicates more confidence in the national housing market and should encourage potential investors to explore their options.

LVR Restrictions Will be Reduced to 30% From 35% for Investments

As a result of the slowing housing price growth and the run-off risk reduction, LVR restrictions are being dropped from 35% to 30% by the Reserve Bank of New Zealand. Owner-occupier loan restrictions have also been adjusted with banks now able to offer mortgages to borrows who have a deposit of less than 20%. This rate is available to 20% of the loans given by banks.

More Opportunities for Airbnb Investment Properties are Now Available

With high deposit rates for investment property purchases keeping many from exploring the earning potential in Airbnb and other ventures, LVR restriction reduction opens up doors for many. These adjustments made by the Reserve Bank are encouraging signs of a steadying market and should serve as positive news for potential property investors. LVR restrictions have the largest impact on first-time property buyers, they are also stricter on investment purchases. As a result, these recent changes will make it easier for aspiring property investors to try their hand at ventures such as Airbnb hosting and other opportunities.Opportunities for Airbnb property investment are continuing to grow in New Zealand. With one of the strongest years ever for tourism and the short-term accommodation industry, forecasts for the coming years are extremely positive. The Reserve Bank’s recent move just adds more strength to the potential of Airbnb investments in Aotearoa.

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