Confirmation came through yesterday from the Reserve Bank that from October 1st, only 10% of Banks new lending can be on a Loan to Value (LVR) ratio over 80%.
Some loans, such as bridging loans and loans that remain at a high LVR level if you move house, are excluded.
Plenty of industry commentary has suggested that first home buyers will be severely affected although it’s easy to see how many will get around the restrictions by borrowing additional funds from Family to meet the 20% deposit requirement. A boon for Lawyers no doubt, as an additional party will need comprehensive legal advice.
Also affected by the reduced amount of lending available will be the more aggressive property investor looking to gear to the maximum to obtain an additional property, as Banks have traditionally preferred to lend to an owner occupier at high LVR’s rather than investors.
It’s been interesting to read the Bankers Association complaining that the home renovator may face increasing difficulty to get a top up loan. One’s mind drifts back to 2008 / 2009 when Banks, by their own decree rather than the Reserve Bank’s, limited lending to 80% LVR’s. At the time we were told it was about stability and “sustainable loan serviceability”. Neither of which are such a concern currently it seems…
So, as a first home buyer, what are some things we can do to make ourselves as attractive as possible to obtain some of the reduced lending available?
One would be to pay off any short term debt, such as Credit Cards and GE / Farmers Cards and the like. Another, and probably pretty obviously, is to SAVE. And be able to demonstrate a track record of saving.
Hop onto an online calculator (or ask your friendly mortgage broker ) and work out what your expected mortgage repayment would be on an amount you are intending to borrow and add a margin onto the interest rate you’re calculating it with. Work it out on say 6.50% rather than the sparkly looking 1 year advertised rates of 4.95%.
If your monthly rent payments when added to your monthly savings amounts exceed the number above, and you can demonstrate via your bank statements that you have been able to manage this for some time, then you are on your way to highlighting to the lender that you can manage a mortgage repayment.
Enjoy foiling upwind. !