Category Archives: Market Updates

New Builds Released from the 20% Deposit Restrictions

New residential construction loans will now be exempt from the loan-to-value (LVR) restrictions introduced from 1 October, Reserve Bank Deputy Governor Grant Spencer said on Tuesday.

“The Reserve Bank has recently consulted with the building industry and banks on the impact of LVR restrictions on residential construction activity,” Mr Spencer said. “While high LVR construction lending is only around 1 percent of total residential lending, it finances around 12 percent of residential building activity.

A chat with a prominent North Shore Real Estate Agent yesterday revealed an interesting anecdote on the new LVR restrictions affecting 1st Home Buyers. This agent had listed 2 similarly spec’d and priced homes next door to each other, that could of appealed to the 1st home buyer type market. 1 Auctioned prior to the new regulations and 1 straight after.  Numbers through the open homes of the latter were approximately 1/5th of what they had been for the 1st home.

Corner Dairy sells for $1,615,000

A corner dairy in Mangere sold this afternoon at the Bayleys Total Property Auctions for $1,615,000.

To be fair, it was actually three tenancies, a superette, a takeaway, and a liquor store.

Located at 113 Favona Rd rental income was $52,064 p.a. providing a yield of 3.22%.

113 Favona

Penalties for Over 80% Lending Begin Taking Shape

Well, there has been a flurry of emailed updates from the major lenders over the past 6 weeks..

Fee’s, interest rates, and credit policies have all been getting tweaked. (not twerked)

Among the changes are new Low Equity Premium fee’s, separate sets of interest rates for over 80% lending, and fee discounts that might once have been available are all but gone for the over 80% borrower.

These additional costs are adding up.

As an example, ANZ is applying a 0.5% margin on interest rates over 80%. On borrowing of $550,000 that’s an additional $2,750 p.a.

Borrow between 85% and 90% with Westpac and the Low Equity Margin is 1.15%. On borrowing of $550,000 that’s an additional $6,325 p.a.

With these sort of costs one would imagine requests to Banco De Mum n Dado will be on the increase…

Over 80% LVR Lending Gets The Handbrake

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. ! 🙂

Signs of Restrictions on High Loan To Value Loans Appear

The Reserve Bank confirmed back in May that by dipping into a newly created toolbox, it intends to increase the amount of capital the Banks have to hold to cover lending at Loan To Value ratio’s (LVR’s) over 80%. Given that lending above 80% LVR makes up about 20% of home lending and perhaps more importantly 30% of new lending, its hoping that by doing so, some of the current “exuberance” may ease at the margins of the (read Auckland) property market.

Translation, the cost of these loans will go up for low deposit home purchasers.

In an extremely unscientific analysis, scanning back thru ones memory bank of recent loans over 80% to 1st home buyers, next to every one of them has involved in part, a gift or interest free loan from Mum and/or Dad. You wonder then if a side effect maybe that Parents should prepare for a larger tap on the shoulder with respect to house purchase deposits as the kids attempt to avoid increased loan approval fee’s. 😉

And while these Reserve Bank changes are expected to be formalised in September we have seen ASB and Sovereign move in advance today by announcing that from Monday the charging of Low Equity Fee’s (LEF’s) on lending over 80% will recommence. Fierce market competition had meant that in recent times these fee’s were being reduced or waived.

Also getting a tweak is the set interest rate used to determine an applicants loan affordability from 6.0% to 6.50%. The net effect of this is that the amount one can borrow on any set income just reduced.