The Reserve Bank has announced that they have decided to remove mortgage loan-to-value ratio (LVR) restrictions for 12 months.
The LVR rules were originally put in place to stabilise the property market as house prices climbed. The restriction dictated how much of a bank’s lending could go to borrowers with a deposit of less than 20 percent of the value of the property.
In light of the impact of the COVID-19 pandemic on the economy, the Reserve Bank warned that the biggest risk to stability is currently a lack of lending. The decision was made to ensure LVR restrictions didn’t have an undue impact on borrowers or lenders as part of the mortgage deferral scheme implemented in response to the COVID-19 pandemic.
The Reserve Bank went through a consultation phase before announcing the change, and all of New Zealand’s incorporated banks were in favour of removing the restrictions.
What do the changes mean for first home buyers?
Scrapping the LVR requirements give every Kiwi a fairer chance at getting onto the property market. The 20% deposit requirement of recent years typically meant there was a 2 tier housing market for first time buyers – those whose parents could afford to help them with a deposit, and those who couldn’t.
Scrapping LVR requirements will give first time home buyers the chance to buy their first home sooner with lower deposit requirements, and give a timely boost to the property industry.
This is great news for First Home Buyer who were gearing up to buy their first home this year and had their plans disrupted by COVID-19. Removing the mortgage LVR restrictions for 12 will allow some buyers to go ahead with their plan to buy a home.
Banks will still require deposits, but they’ll have the flexibility to assess mortgage applications on a case by case basis. This means that those who are still in a good financial position, despite the impact of COVID-19 in recent months can still go ahead with their plans.
We are here to help you make an informed choice about buying your first home.
There’s no doubt that buying a first home is an exciting step toward financial stability and independence, especially if you have been paying rent or living with parents. But, it can also be a huge financial commitment that will affect you for years to come. The impact of COVID-19 on our employment and finances in coming years add another level of complexity.
At Money Compare, we are here to help you make an informed choice about buying your first home. Our financial experts can look at your unique situation to help you make the best decision for your future. Our services are independent, with no obligation, and cost you nothing. Take a few moments to request a call from one of our financial experts.