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Changes to LVR Restrictions

There has been an update to the LVR restrictions that the Reserve Bank have applied. The main focus of the LVR restrictions is now rental property investors in the Auckland region.

What is the Updated Changes to LVR Restrictions?

From the 1st of November 2015 if you are borrowing money to buy an investment property in Auckland you will generally need a 30% deposit.

If you are borrowing to buy an Auckland home to live in (i.e. taking out an owner occupier loan) there are still LVR restrictions in place with banks only allowed to make up to 10% of their new mortgage lending to borrowers with LVRs over 80% in Auckland.




At the same time these Auckland investment property LVR restrictions come in there will be an easing of the LVR restrictions to the rest of the country. From the 1st of November 2015 banks will be able to increase their proportion of lending to 80%+ LVR borrowers buying owner occupier or rental investment property outside of Auckland from 10% to 15%.

The Reserve Bank is also introducing an exemption for high LVR lending to finance leaky building remediation and similar cases.

Why This New Change to LVR?

The Reserve Bank received feedback from many groups via written submissions, and also via meetings and workshops with affected banks. They modified their proposals taking into account the feedback. They have also been monitoring the effect of the LVR restrictions both in Auckland and around the rest of NZ and comparing this to what they intended by making the change. Now a fine tuning of the restrictions is happening.

Changes to LVR Restrictions
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What is the Aim of the LVR Restriction Update?

Rapidly rising house prices are an Auckland phenomena – these changes aim to dampen the investor spend in Auckland – decreasing the risk of a housing market bubble and subsequent correction - and encouraging investment outside of Auckland.

With rapidly rising house prices in Auckland and intense completion to buy in Auckland with pressure on new and existing supply there is already a trend emerging of Auckland buyers investing in property outside of Auckland. This policy change could see this trend increase – this would be a welcome improvement in the balance of investment across New Zealand instead of just in Auckland.

If you want to find out more about the background behind the LVR restrictions check out our initial article on LVR restrictions in New Zealand.

The Propertytoolbox Home Buyers Guide

For more information about home buying in New Zealand - head to the Propertytoolbox Home Buyers Guide. The mortgages and money section is a great help if you are looking to borrow for a home loan. Or get in touch with a home loan expert, a mortgage broker, this service is free - sort your home loan.


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What are LVR or Low Deposit Lending Restrictions?

LVR or low deposit lending restrictions are something that the Reserve Bank of NZ (RBNZ) have introduced to try and control the NZ housing market.

What is LVR?

LVR is ‘Loan to Value Ratio’ and is the amount of your loan divided by the amount your property is worth expressed as a percentage. So if your property is worth $600,000 and you have a $510,000 loan secured against it your LVR is 85% (510,000 divided by 600,000 multiplied by 100).

Why 80%?

When a bank lends you 80% of the value of a property the chances that the housing market will fall enough that you owe the bank more then the property is worth (i.e. your house value falls more then 20%) are small. This is good all round - it means that the bank is always likely to have enough assets as security to back up their borrowing and it also means that you as the borrower are unlikely to ever have negative equity i.e. owe more to the bank then the house is worth. If you borrow 95% on a house the chances of this happening with a fluctuating property market are a lot higher.

What do these restrictions mean?

What these restrictions are is a limit on lending above 80% LVR. Banks can lend above 80% but only to a small proportion of lenders – only 10% of their lending is allowed to be for situations where the LVR is higher than 80%. This means it is a lot harder to borrow more than 80% of the worth of a property.

How does this control the housing market?

This control means that less people are able to buy a house (they don’t have a big enough deposit) so there are less buyers out there – this swings the market more towards a buyers’ market. With market forces in action this should act to at the very least slow house price growth – hopefully preventing a boom and bust cycle in the housing market that the RBNZ see as a risk to the NZ economy.




Some thoughts about the LVR Restrictions:

  • If you have a 20% deposit then it is less likely that if the housing market goes down that you will end up with no equity in your house – this is good :-)
  • If you are saving a deposit to buy a home your savings target just got a lot higher – first home buyers are feeling the sting of this restriction – this is not so good :-(
  • If looking to trade up - but you bought your current home with a small deposit - you will have to save and/or rely on healthy capital gains to get a 20% deposit to buy a bigger/more expensive home. This could take longer than you planned :-(
  • The RBNZ is serious about keeping the NZ economy stable – this is good :-)
  • If you already own a home - and aren't looking to move - it doesn’t really affect you – this is neither here nor there :-|

Are the LVR restrictions working?

With these restrictions already having been in place since October 2013 there has been some evidence that the restrictions are working with a reduction in total house sales evident across all of NZ. As for whether these restrictions will stop unwanted fluctuations in house prices – it is yet to be proven.

So how long will the LVR restrictions be in place?

They are likely to be lifted at some point – maybe even before the end of 2015 – or it could be a while yet - it will depend on house price inflation – and whether this is determined to be at an acceptable level by the RBNZ. Even when the restrictions are lifted it is likely to be gradually – with banks given the go ahead to increase the percentage of low deposit borrowing banks can take on in stages.

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House Buying Negotiating Tactics

There are plenty of house buying negotiating tactics out there - In New Zealand we love a bargain and we love to negotiate. The vendor of any house for sale will not hesitate to counter-sign an offer if it is not to their liking – so don’t be afraid to start house buying negotiations with a lower offer than you are prepared to pay.

There are exceptions to the ‘go in low’ theory and that is when you are involved in a tender, or ‘best offer’ situation – here you need to put your best offer forward.

Negotiating tactics come into their own when you are in a one on one negotiating situation with the vendor. So here are a few guidelines.

Don’t be influenced by the advertised price, or what the real estate agent is indicating, or even the RV - plan to pay what you feel the house is worth - using your experience of what you have seen to guide you (we have some suggestions on how to work out a houses market value) and offer accordingly.




Now, there is low and there is LOW. Don’t go too low - offer something that you would be pleased to get it at, but you feel is still fair, or at least in the ballpark. Sometimes negotiations can stall right from the beginning when an offer is just too low, and there is a feeling that no agreement will ever be reached.

If timing is something you want to use to your advantage - have a think about using a sunset clause.

Once you get that first counter-sign, you will have your first indication of what the vendor will accept. You may be partying on the inside as you are actually happy to pay this, but let’s just see if we can get them a bit lower. The meet in the middle technique in this situation is usually a good one - and often expected.

It is not always money that changes on a counter-signed agreement or that is up for negotiation - sometimes settlement date is a big issue and being flexible with this is as good as cash to some vendors. Find out if this is the case and use it in your negotiations.

Take time to think about it if the sale and purchase agreement comes back counter-signed you don’t have to respond straight away – give it a few hours or even sleep on it.

If the negotiations stall and you are still more then 10% away from the vendor’s price, then it is unlikely to happen. But once you in the 5% realm, then it would take some very stubborn people to let the negotiations fail.

If negotiations do fail and weeks later the house is still staying stubbornly on the market – if you are still interested – re submit you same last offer – the vendor may now be prepared to meet the market.

Need more help on making an offer – check out the Propertytoolbox house buying guide.

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House Buyers – Getting a Real Estate Agent to Help You

A good real estate agent will keep in contact with potential buyers…… but this isn’t always the reality. Here are tips for getting a real estate agent to work for you.

Getting to know you - Get to know the agents in the area you are looking in. Establish which ones have the most listings or seem to most often have the listings the fit your criteria, then stick with them!

Seriously!! - Most real estate agents will not take you seriously until they have seen you around open homes for a few weeks and have had you call them enquiring about properties they have listed. You can also request to go on their emailing database to be sent new house listings and give them a ring each week when the new listings in the office have come out (usually by Tuesday afternoon).

Tell me what you want – Make your ‘Not Negotiable’ list very clear to the real estate agent. A short concise list of requirements saves everyone time.

One on one - A good idea is to arrange viewings of houses outside open home times then you can get to know real estate agents and they can get a better idea of what you are looking for. This relationship can be invaluable, giving you access to properties before the marketing starts and even letting you in on ‘quiet’ listings.

State the facts – Be upfront about your situation. Tell them you have your finance sorted, you don’t have a house to sell and you are ready to move. You are buyer gold! Put it out there.

Soon agents will be knocking down your door, and you will be getting first look at houses fitting your criteria, but don’t let your work on this relationship lapse. If you find they stop calling you, start calling them! This is a relationship that is easier to maintain then build from scratch.

You will meet many real estate agents in your house hunt and you will get an idea immediately as to whether or not you can see any value in building a relationship. You may find that no matter how hard you try, some will not take you seriously, don’t take it to heart, they are not doing their job, just move on.

Just what should you be asking the real estate agent? Find out in ‘The House Hunt’ section of the Propertytoolbox House Buying Guide.

Propertytoolbox Blog Highlights 2011

2011 has seen a lot of great info coming through the Propertytoolbox Blog. Here are my favourite articles for the year.

Sunny NZ Houses

This article about finding out if your house gets sun was a star of the blog this year. The sun aspect is quite often overlooked when buying a house, but it can be an important part of your enjoyment of the house – so check it out ‘Sun Aspect of NZ Houses – Does the House Get Sun’. This article has all the info you need to work it out.

Buyers – Get Your Real Estate Agent to Help You

We’ve told you before – the real estate agent is working for the vendor – but surely they can help you out too? Sure! And in this article ‘House Buyers – Getting a Real Estate Agent to Help You’ we give a few tips on how you can develop your relationship with real estate agents so that you can make the house buying process a bit easier.



Am I a Cash Buyer?

The ‘cash buyer’ term can be a bit of a confusing one and is often used liberally in the house buying process. Propertytoolbox wanted to explain all so that misunderstanding didn’t turn into an expensive mistake! Check out this article ‘Am I a Cash Buyer – Can I Make a Cash Offer’ and find out if you are a cash buyer.

Sale & Purchase Agreement – Checklist

Sometimes the creation and signing of a sale and purchase agreement can happen in a flash! This is a legally binding agreement you are signing so you need to take some time to check it over. In this article ‘House Sale & Purchase Agreement – Checklist’ we give you a list of things to check over before you sign – better to be safe then sorry!

The Propertytoolbox blog is taking a break over Christmas and will be back with a monthly addition in February. Have a great holiday and we will see you then!

House for Sale – Viewing a House

There are typically two ways that you can view a house for sale.

Open Homes

Many houses for sale have open homes. Details of the time of the open home are usually included in any advertising, and your local weekend paper is the most up-to-date resource for these. There are many pros and cons to open homes. The main pro and con being, there will be other people there. This makes it near impossible to have a confidential chat with the agent if you have any questions to ask, or to do a thorough inspection. But the presence of other viewers means you can wander around the house at your leisure independently of an agent. If you are interested, or have questions to ask, you can either ring the agent later or wait for them to call you. Don’t rely on a call from the agent, usually they will call you by the Monday night following the open home, but if there has been lots of interest, or they are not following the usual agent protocol, they may not call.

Arranged viewings

An arranged viewing is when you organise to see the house with the real estate agent at a time that suits you. Agents often need to give vendors and/or tenants plenty of warning before they can show you through a house, so you need to plan in advance for these. Also with some organisation you can see all the properties you are interested in one after the other, saving you time. Again, arranged viewings have pros and cons. You are no longer blending into the crowd at an open home. Good real estate agents will direct your attention to good points of the house and away from bad points, this is their job. They may also try to brush over what may seem like important issues to you. Just remember they are trying to get the house sold and you should only rely on what is on record at the local council and the opinions of independent professionals like building inspectors, and valuers. The main advantage of an arranged viewing is that there are no other potential buyers there, so you can do a thorough investigation. But try to have a look around independently of the real estate agent. After some advice on what to look at when viewing a house – Propertytoolbox has house viewing tips and 10 quick visual checks when viewing a house.
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Is Now The Right Time to Buy a House?

You have probably heard about the property cycle and that house prices have fallen, but may be recovering, and perhaps there is another recession on the horizon... how is that going to affect property prices? Perhaps the feeling is that now, with so much uncertainty around, is not the best time to buy...

Now is actually as good a time as any to buy a home if you have a stable income. Sure prices may fall, but they will also go up again and if you have a long term view, this normal cycle of house prices doesn’t really matter. Nobody really knows what is going to happen and you could wait forever trying to predict the best time to buy.

Especially when you are talking about buying a home (not an investment property) if you buy and sell in the same market (i.e. around the same time) you are going to get value for money.

If you want to wait until house prices stabilise - then one rule that you could use is to buy when prices start consistently going up again. Checking the Quotable Value Data that comes out every month is the best way to find this out, you can even subscribe to get these statistics emailed to you.

You can be confident that if you buy a house right now you will be paying less then for the same house 2 - 3 years ago and now you may even be able to afford a house in a suburb that was previously out of your reach - and you definitely have more negotiating power in the current market.

We have some more food for thought in our 'Thinking About Buying' section of the Propertytoolbox House Buying Guide.

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Am I a Cash Buyer – Can I Make a Cash Offer?

Cash buyers and cash offers are two very different things but these terms are quite often used in the house buying process so it is a good idea to know what they mean. A ‘cash buyer’ is a buyer with the ability to make a ‘cash offer’. House buyers often refer to themselves as ‘cash buyers’ when they:
  1. Have ‘cash’ i.e. have money in the bank and don’t need to get a mortgage, or
  2. Have pre-approval from their bank for lending and will not need to sell an existing house in order to buy a new one (i.e. will not need a house sale condition).
But! Many ‘cash buyers’ will never end up making a cash offer… So what is a ‘cash offer’? If you make an offer with no conditions (an unconditional offer) then you are making a ‘cash offer’. It is not recommended that you make a cash offer unless you have completed all your due diligence regarding a house (i.e. know what you are getting into!). Due diligence can include, but is not limited to, a property valuation, building inspection, LIM, and making sure you have finance approved for that particular house for the price you are offering  i.e. all the stuff that you would normally have as a condition… Once a cash offer is accepted you have ‘gone unconditional’, skipping the period between ‘under offer’ and ‘gone unconditional’ that exists when a conditional offer is accepted. If you make a cash offer and it is accepted you have now bought a house and on the possession/settlement date you will be required to have the funds to complete the purchase. So you may be a cash buyer – but will you ever make a cash offer? That is for you to decide… Need to find out more about financing and making an offer – check out our Mortgages and Money section and the Propertytoolbox House Buying Guide.

I Can’t Get a Mortgage – What Can I Do?

 

The days of the 100% mortgage seem to have gone (for now). You generally need a 5-20% deposit to be able to buy. This means that you will only be able to borrow 80-95% of the purchase price of the house you want. Going on the average New Zealand house price this means you should have around $20,000 - $75,000 in your savings account…

If you don’t have that sort of money, you can go about getting it by starting on a savings plan – you may be surprised how quickly you can save a significant amount – try diverting that extra money you worked out could go towards a house (mortgage payment, maintenance, rates and insurance etc) to a savings account – only pay your rent out of this account, and watch it grow. This is actually a really good way to find out how you cope with the costs of owning your own home, and evidence of a good savings history will make any bank happy!

If a 5-20% deposit is years away, or likely to never eventuate, or you just want a house now, there are other options available. For a start some banks do not strictly enforce the 80-95% rule, so shop around. A good mortgage broker could be your best bet in this situation.

You could also get a guarantor. This means you could get someone else to guarantee that you will be able to pay your mortgage and if you don’t, they will pay it for you. Usually parents are good places to start if you are looking for a guarantor. They don’t have to be a guarantor forever! When capital gains or improvements mean that you now own 5-20% of the current value of your house, you can get the guarantor removed (subject to your banks approval).

You could be gifted your deposit. Banks like it best if you have saved your deposit as it proves you have stable finances and will be able to make regular repayments. But, if you have no deposit they often accept a gifted deposit (money given to you with no legal right to claim back) or a co-borrowed deposit with another person, again probably a parent.

Co-buying is also an option - that is buying a house with a partner, relatives or friends. Or, if you are only planning to buy a house worth less than $280,000 (or up to $350,000 in some areas) you can check out the government scheme called Welcome Home Loans that helps people with no or small deposits buy or build their own homes.

Need more information on mortages – you need our Mortgages and Money Section.

How Do I Get a Mortgage?

A good place to start is your current bank’s website. Most banks have information about mortgages and ‘how much can I borrow’ calculators. Be careful when using the calculators, the amount they say that you will be able to borrow is likely to differ once all your personal circumstances are taken into account.

Propertytoolbox has some favourite bank websites; Westpac and National Bank have great information and calculators.

If you are after a competitive deal, and interest rates will be a big factor in your decision, you can start by checking out all the banks’ interest rates. The website www.interest.co.nz is great for this. Many banks also advertise products and specials on this website – so have a good look around.

Ringing your current bank or a mortgage broker is a good way to begin the process - outline your situation and see what they have to say. If you are happy to continue after these initial discussions it is a good idea to go and see them in person. Your current bank may be more then happy to lend you money to buy a house, but make sure you approach at least one other bank, this way you will know if you are getting a competitive mortgage product. Also you may be able to use this information to negotiate a better deal.

You will need to prepare a pack of information about yourself. It will include at a minimum - proof of identification and pay slips (or proof of income) for up to two years depending on your employment status (permanent, contractor, self employed etc).

There is a lot of paperwork involved in mortgage applications, so be prepared! You may be required to provide all sorts of information ranging from 3 months worth of transactional bank statements, to business accounts, and even proof of residency. And there will be very comprehensive forms to fill in, different ones for each bank. It can be a long and tiring process!

If you have unusual circumstances, a mortgage broker is probably the best way to go about getting a mortgage.As with most things – the more you shop around and negotiate, the better the deal you are going to get, and the more likely you are to find a mortgage that will suit you. So be prepared to do some hard work to get a good mortgage.

Want to find out what lenders take into account when working our 'how much can I borrow' head here. Need more information on mortgages - the Propertytoolbox Mortgages and Money section has it all!