Effective 1st May 2020 the LVR (Loan to Value Ratio) restrictions were lifted by the Reserve Bank of NZ (RBNZ). The RBNZ did this due to the uncertainty of the effect that COVID-19 would have on the economy – the idea being to buy people some time and to give people maximum options. The lifting of the restrictions was intended to be for 12 months to give everyone certainty.
On the 11th November 2020, the RBNZ indicated that they were looking to bring back the LVR restrictions from 1st March 2021. ASB responded immediately by reinstating the restrictions with ANZ quickly following by looking to reinstate them from 7th December.
In simple terms the LVR determines how much you need for a deposit to purchase a property. Property Investors and Owner Occupiers are treated in 2 different ways.
So what does all that mean? If you are a first home buyer and or looking to purchase your own home it means very little. You have always been able to borrow 80% and in certain circumstances can borrow up to 95%, although this is not always recommended or safe. For investors it is a different story. For a new build you can borrow up to 80% but for all other investments you will require a 30% deposit and only be able to borrow up to 70%.
By requiring investors to have more of a deposit it gives first home buyers and owner occupiers a little advantage on the finance front and can also provide the investors with a little more resilience should the property market fluctuate. This resilience will depend on how the finance is structured.
Will reinstating the LVR restrictions make a difference to the super hot property market? The answer is possibly not. In my view the main issue is that there is an insufficient supply of properties for both rentals and owner occupied homes, so with demand still high and a lack of supply the house prices are likely to continue to trend up, especially with interest rates low. The low interest rates increase affordability for buyers.
New Zealanders have a love affair with property, and with term investments providing such low returns many people feel that they have enough understanding about property to invest as opposed to investing in the wider unknown of the share market.