Will the LVR changes let you take the next step?
A journalist’s job is to write a headline that gets you interested enough to click on it and read the story. [See above!] Never forget that clicking means you’ll get to see an advertisement that pays their wages.
So, when you see “Reserve bank to remove LVR rules”, I want you remember that when you click on the story.
Don’t let me stop you reading it. Just read it carefully and keep your hair on. If you do that then you’ll notice two things.
#1 – Removing the Loan-To-Value (LVR) rules is only a proposal at this stage. Nothing has actually happened. Yes, there is a very short consultation period, and that’s a pretty strong indicator that the proposal will become reality. But it’s still a proposal. More than that, we don’t know exactly what the proposal entails other than something is going to be removed.
#2 – The ‘proposal’ has been framed in terms of making sure that any reduction in house values won’t result in people with mortgages going under because their equity has just dried up, which in turn prevents the bank from helping.
I know first home buyers have seen this news and started freaking out (in a good way). It feels like hope! That there might be flexibility to borrow a bit more. It feels like the RBNZ giveth what Covid19 hath taken away!
But, let me tell you what happened at the coalface when the LVR rules came in in 2013.
The banks completely clammed up for a month. It took a further month for them to figure the rules out. And then about 4 months to bed things in. And here we are 7 years later.
On the basis that any LVR rule change is being implemented to assist existing mortgage holders (in other words, any impact on first home buyers might be a happy side effect rather than the main event), here’s what I think we can expect. It’ll take time for the banks to get their heads around it because it always does. And the banks have plenty of other sh!# to wade through at the moment, so I would not be expecting the flood gates to open.
In fact, any removal of LVR rules will mean a much tighter focus on income.
Your income will need to be solid. You’ll need to have confidence in your employer’s ability to keep you employed. You’ll need to have some income, full stop.
To push the point, I’ve just received an update from one of the major banks telling me that all new loan applications have to come with additional commentary around the stability of your job or business.
On top of that, don’t forget that the banks stress test affordability by seeing if you can handle repayments on a mortgage with an interest rate of 7%.
Let me say it like this…
Hillary climbed Everest.
But he also had a plan, he took some oxygen and a had a bloke called Tenzing with him.
Fact is this – it took more than a change in the weather to get to the top.
For you, the same. The hard graft still needs to happen – the spending habits, the budget, the solidity of income, the KiwiSaver savings, the bank roll…
This ‘change’ in the weather may just make that final step a little easier, when you get to it. We’ll see.