LVR changes? First home buyers, sorry, they mean diddly squat to you

You’re probably well aware that the RBNZ removed the LVR restrictions on 30th April 2020.

What you might not realise is that this was done so that the mortgage relief being granted to people as a result of Covid-19 (mortgage holidays etc), didn’t result in breaches of the then restrictions.

The media obviously picked up the story and painted the removal as being manna from heaven for first home buyers especially those who have very small deposits.

 

What have the banks done in response?

Broadly speaking, nothing.

Deposit requirements in some categories (eg apartments and construction) at one particular lender have actually become harder!

 

Falling property values

We haven’t seen any evidence of this yet but there’s a real possibility of it happening in the near term.

While this creates an excellent buying opportunity, if property values fall say 10% and the bank allowed you to buy with a 5% deposit then all of sudden you’re underwater. Negative equity, and that’s not a good place for anyone to be.

Allowing a 10% deposit in an environment where values might fall 10% is a bit risky too.

No wonder the banks haven’t changed their deposit requirements. 

Can low deposit lending still be done?

Yes, but it has to be with a 10% deposit otherwise forget it.

Income is seriously in focus.

To be fair, it always has been. But with job security concerns and economic uncertainty in general, the focus on income is even tighter now for all categories of home buyer.

I realise that many people’s jobs and income are solid. The bank knows this too. But there’s such a lot of variation – even within ‘safe’ industries – that the banks need us to paint a picture to give them confidence that your individual income is sustainable going forward.

Your pay slip and bank statements are useful, but we need a story too. Maybe a letter from the boss, maybe some financial forecasts and a business plan to back it up.

 

Glass half empty?

I can imagine you might feel deflated by this news.

Here is the perfect opportunity to buy something cheap with low interest rates, but the bloody banks aren’t making it any easier even though the RBNZ says they can.

Well, that above is how it is. That’s the landscape you face. Of course I’m keen to help you get into a house, so if things change I’ll be sure to let you know.

In the meantime, keep saving, keep looking forward, stay in touch.