Praneeta Mahajan
Hamilton, May 26, 2023
The Reserve Bank of New Zealand (RBNZ) will ease the Loan-to-Value Ratio (LVR) from June 2023.
Deputy Governor Christian Hawkesby said that the move will apply to occupier-borrowers with less than 20% deposit and property investors with low deposits.
If you are buying a home for $600,000 and you have $120,000 as a deposit, the remaining $480,000 will be borrowed to buy the home, constituting 80% of the home’s total value.
LVR restrictions promote financial stability by limiting high-risk mortgage lending. This is done to reduce the impact and severity of housing market corrections by increasing the resilience of the banking system and households.
Positive news for borrowers
Mr Hawkesby said that the risks to bank finances from low deposit lending had reduced and the current limits, which were put in place in November 2021 at the height of the pandemic were now too tight and may be blocking creditworthy borrowers from borrowing.
“The restrictions built resilience in the financial system, which had been strong in the past year amid falling house prices. It is important to reiterate our assessment that the risks to financial stability posed by high-LVR lending have reduced to a level where we believe the current restrictions may be unnecessarily reducing efficiency,” he said.
According to Mr Hawkesby, the previous LVR settings were put in place in November 2021 when risks were elevated.
“The restrictions built resilience in the financial system, which has been evident in the past year as house prices have fallen without widespread impacts to financial stability,” he said.
From June 1, 2023 the LVR restrictions will be (1) a 15% limit (currently 10%) for loans with LVR above 80% for owner occupiers and (2) a 5% limit for loans with LVR above 65% (currently 60%) for investors.
The fact that banks will soon be able to approve up to 15% of their new lending to owner-occupiers borrowing more than 80% is good news. In short, it means, fewer first-home buyers will need a 20% deposit to buy a house.
The property market has fallen about 17% since the peak in late 2021, with expectations prices have further fall, although the rate of decline is slowing.
In its latest Monetary Policy Statement, RBNZ said THAT house prices had fallen to a more sustainable level.
The move comes after the Bank lifted the Official Cash Rate from 5.25% to 5.5% on May 24, 2023, prompting some banks to lift their floating home loan rates again.
Avenues to home ownership
Harcourts Hamilton Real Estate Salesperson Arjun Mahajan said that those paying sky-high rents and watching as the purchase prices also ease out can look into government assistance schemes available to assist them, including First Home Grants, First Home Loans, and First Home Partner.
“First Home Grants give eligible first-home buyers up to $20,000 for a deposit. First Home Loans often also allow eligible buyers to purchase a home with a 5% deposit with no price caps. First Home Partner is a shared ownership scheme to help aspiring first-home buyers purchase a home together with Kāinga Ora. It is always a great idea to talk to your mortgage advisor or bank representative and explore the various avenues for home ownership,” he said.
Praneeta Mahajan is an Indian Newslink Reporter based in Hamilton.
