Now that RBNZimposed loan-to-value (LVR) restrictions have been removed until May 2021, an increasing number of first-home buyers and investors may be able to step on the property ladder with a lower deposit – provided they can meet all the lending requirements.
Here’s what ‘no LVRs’ can mean for New Zealanders looking to make a property purchase.
Why were LVRs introduced in the first place?
As many will remember, loan-to-value restrictions by the RBNZ were introduced in October 2013, to limit high loan-to-value residential mortgage lending and put a lid on rapid house price inflation.
In simple words, LVR is the amount of a mortgage compared to the value of a property. Rules were adjusted over the years, and up until 1 May 2020, most buyers applying for a mortgage with a bank needed a deposit of 20 per cent or more for a first home, and 30 per cent or more for an investment property.
It’s important to note here that low-deposit mortgages were already possible for buyers who passed strict serviceability tests – and this is unlikely to change significantly.
‘No LVRs’ doesn’t mean ‘no deposit’
Even though restrictions to banks have been removed, you’ll still need to put down a deposit. Some banks, for example, have confirmed they’re willing to lend to mortgage borrowers with at least 10 per cent deposit, but stressed that restrictions may still apply to those who have less than 20 per cent deposit.
So while it’s true that you may be in a better position to secure a mortgage, you will still need to prove that you can service it. And of course, the bigger the deposit, the more mortgage options will be available to you (including lower interest rates).
How to maximise your mortgage opportunities
As a buyer, there are certain things you can do to take advantage of the current lending environment and boost your opportunities of securing the mortgage you need.
1. Talk to a SHARE mortgage adviser
If you’re looking to purchase property and would like to know whether your position has recently improved, please get in touch with a SHARE mortgage adviser.
Keep in mind that not all lenders are created equal, and some may be more appropriate for your circumstances than others. Also, things are changing fast at the moment, with lenders lowering their rates and revising their criteria. We know the market, and can help you understand your options in detail.
2. Get your finances in order
To get your mortgage approved, you must show that you can meet the repayments. So it’s important to get your finances in good order before applying.
As mortgage advisers, we can help you assess your financial situation (including income, debt levels and savings), and recommend an action plan to tie the loose ends. For example, you may need to:
- pay more attention to your bank account to avoid an unarranged overdraft;
- reduce your debt levels;
- show good savings habits;
- improve your credit record;
- prove that you have stable employment and income.
3. Understand your ‘borrowing power’
Once again, talk to us. Our SHARE mortgage advisers can help you run the numbers and liaise with lenders to give you clarity on what you can comfortably afford to buy, depending on the size of your deposit. Knowing your borrowing capacity can help you narrow down your property search and organise your financial plans around it.
4. Be upfront about your situation
Even if your financial circumstances are not as stable as you’d like, itdoesn’t necessarily mean home ownership is out of reach. Sometimes, it could be a matter of making some adjustments or finding a lender that’s appropriate for your specific needs.
In any case, the key thing is to be honest and upfront about your situation, both present and past. A lender may be more inclined to offer you finance if you front up with the truth and an explanation, whereas trying to cover something up is always a ‘red flag’ (and can even have legal consequences).
We’re here to help
With property values increasing at a fast pace over the past few years, there’s no denying that saving up a house deposit has become increasingly difficult. But there may be options out there for you.
At SHARE, we have helped thousands of New Zealanders from all walks of life improve their mortgage opportunities and secure the home loan they needed to enter the property market. If you’d like us to look at the size of your deposit and your overall financial picture, please don’t hesitate to contact us.
Disclaimer: Please note that the content provided in these articles is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your specific situation. Before making any decisions based on the information provided in these articles, please use your discretion, and seek advice from your SHARE Financial Adviser.