As an Auckland property investor, chances are you’ll be impacted by the LVRs when you take out a mortgage to purchase future investment properties. Find out what the current loan to value ratios are, plus the reason why they were implemented in the first place. Learn more now.
As a property investor, understanding about the current loan to value ratios should be high on your priority list. That’s because they are decreed by the Reserve Bank and can impact upon how much you can borrow when purchasing a rental. Today we’re going to discuss what loan to value ratios or LVRs are, plus the current rules property investors are subject to with them.
What are Loan to Value Ratios?
An LVR restriction is the percentage a bank can lend against a property, as compared to the value of that property. In 2013, the Reserve Bank of New Zealand established a temporary LVR with the aim to slow the housing market down in Auckland and across the country. It was also believed that borrowers with less equity in place are more vulnerable financially. The LVR restrictions are one of the four macro-prudential tools the RBNZ can use to reduce the chance of boom bust cycles impacting upon the financial sector. On 1 January 2018, we saw an easing of the LVRs which remain the current restrictions we have today.
Loan to value ratios are of interest to property investors and home buyers who are wanting to take out a mortgage to purchase a property. This is because banks have a limit placed upon them as to the percentage of low LVRs they can take onboard.
Current Loan to Value Ratios for Residential & Investment Properties
As of 1 January 2018, there are two current nationwide speed limits (the restrictions on low deposit lending) for investment and owner-occupied lending. They are:
- Owner occupiers – banks can have in their lending portfolio no more than 15% of their borrowers with less than a 20% deposit.
- Investment borrowers – banks can have in their lending portfolio no more than 5% of their borrowers with less than a 35% deposit.
There are however some exemptions to the loan to value ratios. These include new construction loans where there are new residential properties being made, Housing New Zealand’s Welcome Home Loan scheme, existing loans and bridging finance.
The LVRs are a temporary measure to help prevent against a sudden change in Auckland and the country’s housing market. However, it is not known when they will be adjusted or removed.
If you’re an Auckland based landlord, especially with properties to rent in the North Shore, Hibiscus Coast, Albany, Remuera, Dairy Flat or Central Auckland areas, we need to chat. Send us a message now and let’s meet up for coffee to discuss how we can help you manage your portfolio.
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