In an effort to put the brakes on a runaway property market, from 1 May 2021, the Reserve Bank of New Zealand has implemented Loan to Value Ratio (LVR) restrictions that impact the way property investors access mortgage finance. Going forward, a maximum of just 5 per cent of banks’ lending can be done at above 60 per cent LVR. For property investors, that means having at least a 30 – 40 per cent deposit. Here are 3 tips that could help property investors navigate high LVRs.
1. Leverage maximum equity
The reinstatement of LVRs has no doubt impacted many property investors, and securing mortgage finance with a high LVR could prove challenging going forward.
One way to meet LVR requirements is to leverage the equity built up in existing property to finance further property investments. To determine how much equity you have in existing property, start by getting an up-to-date property valuation. In the current heated property market, property values can rise and fall significantly over time, so if you haven’t recently valued your property, now’s a good time to do so.
If property value growth isn’t sufficient, you may need to consider renovating to add value to your property and improve equity. Look at ways to maximise value in your property without overspending; sometimes the most cost effective improvements can yield the greatest returns.
2. Buy a new build
An exception to the LVR rule applies to new build properties – defined as properties that are no more than six months old, still to be built or at an early stage of construction. In the case of new builds, property investors may apply for lending up to 80 per cent LVR.
However, banks’ own lending criteria will still apply, and many banks have set their own maximum LVR limits. That’s why it’s worthwhile discussing your requirements with a mortgage adviser who understands which lenders are amenable to approving lending to property investors for new builds at 80 per cent.
3. Consider non-bank lenders
Non-bank lenders may be a solution for property investors who don’t meet LVR requirements. While registered banks in New Zealand must adhere to RBNZ policy, non-bank lenders typically have their own wholesale funding lines, and while they still function like a bank when it comes to evaluating and approving loans, are often able to provide loan approvals to borrowers who have previously been turned down for not meeting banks’ lending criteria.
Mortgage Express branded mortgage advisers work with both registered banks and non-bank lenders which offer competitive interest rates and terms. Contact a Mortgage Express branded mortgage adviser to see if a non-bank lender would fit your requirements.
Get property investment advice
Investing in property is one of the ways to create wealth and ensure ongoing financial security. With house prices on the rise and borrowing costs as low as they currently are, it makes good financial sense to invest in property. However, there are risks associated with property investing and these risks should be understood by seeking professional advice.
If you’re considering buying an investment property but you’re not sure where to start or how to get information you can trust, get in touch with a Mortgage Express mortgage adviser.