It’s now been over three weeks since the Reserve Bank of New Zealand removed the loan-to-value-ratio (LVR) funding restrictions but we are still waiting for the banks to start offering low deposit home loans.
The banks are now technically allowed to lend as much as they like.
They could lend to everyone with just a 5% deposit if they really wanted, but they seem reluctant to offer low deposit home loans.
What The Changes Mean
So has the changes removed to the loan-to-value-ratio (LVR) had an impact on how the banks are dealing with home loan applicants?
Two key points that you need to consider are;
- One of the main reason the LVR restrictions were removed was so that the large number of mortgage deferrals, colloquially called “mortgage holidays”, didn’t cause the banks to breach the Reserve Bank rules. If, for example, a lot of mortgages went from 78 percent to 81 percent LVR because of the mortgage holidays, the banks would be at risk of serious repercussions from the Reserve Bank. The ability for new home buyers to purchase with less than 20 percent deposit was a side effect of this rule change, not the main purpose.
- Banks have always had their own policy to manage the deemed risk, so regardless of what they are allowed to lend they will determine what they are prepared to lend. Just because the Reserve Banks says a bank can lend over 80 percent, it doesn’t mean they will.
So far the communications from the banks have been “let’s wait to see” … wait and see what the banks credit teams do, what other banks do, what property prices do and of course see how much lending they may be missing out on.
At this stage most of the banks will offer;
- Up to 90% lending if you are buying a home to live in,
- BUT they are still going to charge you a low equity fee or margin if you are borrowing over 80%
- It’s still a maximum of 70% for investment properties
The banks are now free from the LVR restrictions for at least the next 12-months but they are not in a rush to make any changes.
Unknown Financial Impacts From COVID-19
Whether you agree that the New Zealand Government has handled the COVID-19 crisis well or not, there is no question that there will be some quite serious financial impacts.
The financial impacts are unknown, and there is no clear direction yet on how the country is going to move out of the restrictions.
Like most Kiwis, the banks are waiting to see what the repercussions of Level 4 lockdown will be on business activity, the property market and of course unemployment.
In addition there are a lot of homeowners that are currently being largely protected from the financial impact while they have a mortgage holiday, but that is not going to last forever and so by September we will be expecting those people to start paying again. This might be the time that we start to see the real financial pressure start to mount on people who have either lost their employment or business, or been severely financially impacted.
There will be mortgagee sales and stressed sellers, but we just don’t know how many.
Will Low Deposit Home Loans Return?
There are a lot of first home buyers that would love the opportunity to buy a home with a lower deposit.
After the LVR restrictions were removed some thought the banks would start doing low deposit mortgages straight away, so have been disappointed in the response.
But low deposits loans are available to people that can present a good loan application.
The banks are focused on sustainable income, little short-term debt and good account conduct.
It’s more important than ever to present your finance application well, and that is another good reason to sign up for the Pathways to Home Ownership course.