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New Loan-to-value Ratio (LVR) Restrictions


Today the Reserve bank has today released its new lending LVR restrictions in a bid to slow down the bolting housing market. From March 1, these restrictions will increase the deposit required by property investors to 30% and to 20% for owner occupiers. However, from May 1 the deposit required from property investors will be increased further to 40% and that required from owner occupiers will remain at 20%.

“This will inevitably slow down the housing market and make it harder for first home buyers and investors to enter the market,” said Sharon Cullwick, executive officer for the NZ Property Investors’ Federation (NZPIF). “However, the larger deposits required may not stop those people who are looking for an investment option which is an alternative to the extremely low term deposit rates offered by the banks.”

During the last year, there has been a significant increase of new investors entering the market. These investors have purchased on the proviso that house prices will continue to rise at the same levels we have seen. Capital gains however should only be considered a bonus and not be relied upon.

In any case, these Reserve Bank restrictions may not make a significant difference to some property investors who have already been hindered by the banks’ internal Debt-To-Income and serviceability rules over the last two years. These restrictions are an internal process that safe guard the financial stability of banks.

Furthermore, Cullwick said that a balance needs to be made between allowing investors to continue to enter the market to provide rental properties for some of the 22,000+ people in emergency housing and meeting the needs of first home buyers.

The NZPIF does not believe that these new regulations will have any impact on the housing crisis which is largely driven by lack of supply. If anything, housing stock for rent will be gradually reduced as property investors are prevented from entering the market. This will put more pressure on those groups who are already struggling to find a place to live.

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