13/05/2015 - Reserve Bank announces new LVR restrictions
The Reserve Bank announced Wednesday morning the introduction of new policy changes to the loan-to-value (LVR) ratio.
LVR is calculated as Total Loan / Property Value = x%.
The changes take effect from 1 October 2015 however the Reserve Bank has asked the banks to operate in the spirit of the changes effective immediately.
The changes are as follows:
1. All residential property investors (defined as any retail mortgage on a residential property in the Auckland Council region that is not owner occupied) to have a deposit of at least 30%.
2. Increase the speed limit for high LVR borrowing outside of Auckland from 10 to 15 percent. For clarity, this means the banks can now lend 15% of mortgages to over-80% borrowing instead of 10% of mortgages.
3. Retain existing 10 percent speed limit for loans to owner-occupiers in Auckland at LVRs greater than 80%. This is an extension of the current policy in force.
The restrictions do not apply to loans to construct new houses or apartments.
The banks will need to hold more capital against the investor property asset class, meaning they will be more selective as to where they lend the money.
The new rules take effect from 1 October 2015 with a further 9 months for the banks to reclassify existing investor-property loans to ensure they are holding the required increased capital. Similar to when the LVR speed limits were introduced, we anticipate a significant reduction in lending for investment properties from the banks during implementation.
As always, Keystone Advice Group is here to help you navigate through the rules and assist you to meet your objectives.