Mortgage Matters

4 mortgagematters

Auckland Region Loan to Value Ratio (LVR) restrictions Making their impact felt

As you may be aware, the Reserve Bank of New Zealand has recently introduced new rules around the deposit required to buy an investment property in the Auckland Council region. Below are some of my observations so far:

1) My last twelve investment clients have been looking to buy in either Tauranga, Hamilton or Whangarei. Not a single client was looking to buy in Auckland. The greater deposit required and low rental returns have forced them to look elsewhere.

2) Four of the above twelve clients are buying “lifeboat” investment properties in the regions. When the time is right, they will leave Auckland and move into the rental property – and most will be debt-free.

3) I’ve seen client’s pay premium prices (in my eyes) in these areas. Be clear on what you are trying to achieve; buying property for the sake of it could be expensive.

4) When your advisor places your application with a lender, you have to be very clear and disclose which property you intend to live in and which property will be the investment.

5) Be very careful when buying on the edge of the Auckland Council border (for example, around Wellsford). The lender must approve the new property’s location. They need to make sure the proposal fits into the new regulations.

6) If you currently have Auckland investment properties, I would suggest building a buffer into your equity position. In the future, having your portfolio close to 70% LVR could place you a tight situation. In the past, banks could lend to 80% and go over this threshold at their discretion.

However this level of discretion has been reigned in and Banks will not lend over 70% of the investment’s value – end of story. They risk losing their banking licence or large fines. The “I’ve been with the bank for years” attitude won’t wash.

If you have any concerns about your current situation or further plans, please consult your mortgage advisor and/or accountant.

For further details, feel free to contact Ivan on 09 427 5870 or 0275 775 995 or email ivan@ivanurlich.co.nz

Ivan Urlich is a registered financial adviser, specialising in mortgages. His disclosure statement is available free of charge on request.

Please note: The above should be considered a general rather than a complete list of approaching a property purchase.