LVR Changes for Investors: Do They Matter?

LVR changes make it harder for investors to stretch their capital when buying more property, but are there other options beyond your typical bank lending?  

Earlier this year, in response to Covid-19 and a potential economic downturn, the Reserve Bank removed the loan-to-value restrictions (LVRs). In March 2021, the LVRs are likely to be reinforced again at 70% for investors, however, ASB, Westpac and ANZ are now already adopting these guidelines. ANZ will do the same from December and we expect all other banks to follow in due course. 

So, what are the implications of this? 

It really does depend on how long you've owned your properties. If you have been thinking of investing and have owned a property in Wellington for say three years then you are probably still in a position to purchase a rental due to the increase in value of your owner-occupied property. 

Let’s say you paid $550k three years ago and had a 10% deposit with a mortgage of $495k. That house is now more likely to have a market value of $730k and your mortgage is now at say $480k.

You can borrow up to 80% of $730k which is $584k less your existing mortgage of $480k which leaves $104k to go towards the 30% deposit required for an investment property, or a new property of $346k.  Given the rapid rise in house prices, there will be slim pickings around or below the $340k mark for investment properties.

So, this scenario doesn't quite work under the new guidelines most of the banks are following.   

Your options are now to wait (and save some more cash and pay debt down) or to talk to us about moving away from the traditional banks and going to a non-bank lender who, with the above scenario, would allow you to purchase another property up to the value of $520k.

So, do the changes matter? Probably not too much. Talk to us to run a couple of scenarios for you.

Graham Goodison is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.