Tommy's Real Estate

Loan-­to-­Value Restrictions Hurting First Time Home Buyers


Wellington, NZ -- (SBWIRE) -- 08/18/2014 -- LVR restrictions New Zealand are measures of how much a bank is allowed to lend against residential property over the value of the property. New Zealand's loan to value ratio restrictions were put in place to limit the amount of high LVR lending and not to eliminate this type of lending entirely. While it is a reasonable measure to prevent banks from sticking out their necks for borrowers who may not be able to pay off loans on time which could result to significant dips in real estate property values, the restrictions may be hurting first time home buyers and investors.

Who are affected?
Banks must reduce the amount of high LVR lending if they want to keep their registrations and to stay in business. Now restrictions only affect future lending or top­ups of existing loans that increases a borrower's total home lending over the 80% restriction.Those who want to buy a house and want a loan of more than 80% of the purchase property value will be affected. First time home buyers may also be affected, especially those with a deposit of less than 200% of the value of the house. The exceptions are those who secured the loan through the Housing New Zealand's Welcome Home Loan Scheme which exempts homeowners from this type of restriction.

How this affects new home owners is simple. The presence of the restrictions basically forces first­time home buyers to choose between taking a loan and dealing with higher interest rates, or saving up so they can reach the minimum deposit amounts which are higher than before and still face the risk of paying higher interest. A first time home buyer planning on buying a home now has to save for a longer period in order to reach the minimum deposit amounts set by banks who want to comply with restrictions, making it harder for the buyer to secure the home even in real estate environments most favorable to him, such as when the interest rates are low.

There are other real estate companies that favor the restriction since it may help prevent homeowners from taking out loans for homes they could not afford. However, it does make the initial steps of buying a home that more difficult for that segment of the population who can afford the mortgage rates but now have to wait longer if they want to be able to afford the deposit later on.

Getting the right information and working with reliable mortgage brokers is key for new homeowners who want to be able to make the best decisions regarding their loans in light of LVR restrictions that banks must comply with. They can look for alternative ways of financing such as obtaining an independent valuation of property. If the second valuation differs from the quoted price, the bank usually offers a loan based on the lower figure to bring the loan within the LVR restriction. Another option would be to get loans from institutions not burdened by the restriction as banks are. Of course, there is always that option to borrow from a non­financialinstitution such as a family member.

Talk to the team to discuss this further (­estate­broker).

About Tommy's Real Estate
Tommy's Real Estate is an exceptional team of real estate professionals who know the Wellington, New Zealand property market by heart. We look after the interest of clients who are looking to buy property, sell their property or those who want to get into the business as a way of investing their money.

For more information, contact Nicki Cruickshank at Tommy's Real Estate Limited, MREINZ209
Victoria Street, Te Aro,Wellington PO Box 6296, Marion Square
Office Phone: +64 4 381 8600 | Office Fax: +64 4 381 8601