Reserve Bank drops LVR Restrictions but will it help kiwis buy their first home?
The Reserve Bank of New Zealand announced that as of the 1st May 2020, they have removed LVR restrictions for twelve months.
As a first home buyer, it wouldn’t be wrong to be asking “What are LVR restrictions?” in the first place!
Loan to Value Ratio (LVR) restrictions are limits on banks to reduce the amount of low-deposit mortgage lending they can do and were imposed on banks in 2013.
Prior to 1st of May, for first home buyers, this has meant that if your deposit was less than 20% of the home’s value, your loan application will be affected by the LVR restrictions imposed by the Reserve Bank of New Zealand. Those restrictions mean that only 20% of the bank’s new lending for owner-occupied residential housing (new home loans) can have an LVR of more than 80% (a 20% deposit or less).
Due to the COVID-19 pandemic, the decision was made to remove the LVR restrictions so that they didn’t have “an undue impact” on borrowers or lenders as part of the six month holiday scheme offered to struggling homeowners.
Whilst removing the restrictions could make it easier for more first home buyers to get onto the property ladder, new mortgages will continue to be assessed on the level of savings and ability to make repayments. Banks weren’t doing as much high-risk lending as what they were allowed to under the rules pre-COVID-19 and given the current uncertainty around the economic outlook, banks are likely to be overly cautious with lending to credit-worthy borrowers.
Our Tips
Talk to a mortgage broker about your situation, their advice and service are FREE. A good mortgage broker will ask you all the right questions and get an understanding of where you are at. They will be able to tell you if you are ready to apply for a mortgage, and if not, what steps you can do to help you get there faster. If you are ready, they will be able to gather your information to put together your application for the banks. The removal of the LVR restrictions may be able to help you get into your first home a lot sooner.