The loan-to-value-ratio (LVR) restrictions imposed on the banks by the Reserve Bank of New Zealand (RBNZ) have left many home buyers and investors being turned away when they apply for finance.
Achieving your dreams of buying property may now seem out of reach, but thankfully there are still options out there – you just have to talk to the right people.
What are the LVR restrictions?
The RBNZ’s nationwide regulations have imposed restrictions on the banks lending to owner-occupiers with deposits less than 20 per cent of the property value, and investors with deposits less than 40 per cent.
While the RBNZ has left open a small window for banks to lend to borrowers with smaller deposits, this can only represent a very small percentage of the banks’ total lending portfolio. This creates uncertainty for many customers about whether or not they will be “one of the lucky few” who fit within this small window.
What are the alternatives?
The good news is there are lenders in New Zealand that can still help investors and owner-occupiers reach their property goals. While the banks face broader lending restrictions, there are smaller, flexible lenders that can help borrowers with smaller deposits.
What does this mean for first home buyers and investors?
First Home Buyers
The prospect of saving a 20 per cent deposit is daunting for many first home buyers (FHBs), so knowing they can buy with a smaller deposit is welcome news.
Better still, many of these smaller lenders are also quite flexible in the types of deposit they will accept, so FHBs may find it easier to get approved for a loan using:
Non-genuine savings: Many of the banks set strict criteria around what is an acceptable deposit when you apply for a home loan. Typically banks like to see that a considerable portion of your deposit has been saved consistently over a period of time. With house prices having increased considerably in many parts of the country, saving the required 20 per cent is becoming difficult. Receiving some or all of a deposit as a gift from family or friends is one way of getting the required amount together. However this can affect your ability to get approved for a loan, so having lenders that not only accept smaller deposits, but also non-genuine savings is a win-win for FHBs.
Borrowed deposits: Sometimes friends or family can lend a deposit to a FHB with the intention that the money is eventually paid back. Again, the banks will look at a deposit like this differently and this can affect your ability to get a loan. There are however some lenders that are more open to buyers with borrowed deposits.
For first time investors or professionals, being able to borrow with a lower deposit means they won’t be completely shut out of the market.
Needing a smaller deposit can open up the opportunity to buy more than one investment property for those who may have a larger deposit but don’t want to put all of their eggs into one basket.
So, who are these lenders?
There is a range of different lenders that may be able to assist you. Reaching out to a mortgage broker is the best way to find out about the best option for you. They know the market better than anyone, so will be able to help guide you through the different options and help you make an informed decision.
You can find your nearest Mike Pero mortgage broker here.