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LVR rules are constantly changing. Here is the latest on deposit requirements for investment properties and baches.
Loan-to-value ratios (LVRs) are an ever-changing target for buyers; the Reserve Bank and the mainstream lenders use the ratio as a lever to reduce (or increase) the amount of deposit required and finance available to the general public thereby altering the heat of the property market. This can be frustrating for buyers but is often a much better alternative to increasing interest rates.
In early 2021, LVR restrictions were reinstated to try and cool down the NZ property market. The major change was for investment properties where the maximum you can borrow on an investment property moved from 80% to 60%… sort of.
While the maximum that can be borrowed on an existing property is 60%, newly-built investment properties are exempt from the LVR restrictions. This means lending of up to 80% can be achieved; occasionally 90%.
In terms of actual dollar amounts, this is significant. Purchasing a newly-built $1m investment property will require $200k deposit as opposed to $400k for an existing property. Most banks define “newly-built” as
· the Code of Compliance Certificate (CCC) is less than 6 months old and
· the property is purchased directly from the developer.
It’s important to remember when reading about deposit requirements like $200k, that you don’t actually need $200k cash in your savings account. You can use the equity in your property or properties and just need to be able to borrow that much against them. If you don’t have quite that much equity, you can throw in some cash to top up the deposit.
When you are buying your first home, the banks almost always require that you show you have saved at least 5% of the deposit. This isn't the case so much for investment properties and baches as a lot of people buy property from the equity in their current home which is difficult to show as "savings".
If you are receiving money from a family member, however, it is good to have legal documents drawn up to keep things clean in the future.
With regard to investing in a holiday home, banks mostly treat these the same as investment properties. Purchasing an existing serviced bach will therefore require a 40% deposit; a newly-built bach will likely only require 10%-20%.
Buyers will need to weigh up the pros and cons of which they look at. It’s likely that the market for existing properties will be thinner because of the need to have 40% in equity or cash. This could mean getting a bargain. Alternatively, buying new requires much less equity so you could potentially buy more than 1 bach. It will come down to each buyer's personal situation and their ability to meet the income requirements for the bank.
This article was produced by The Mortgage Lab and is not intended as personalised financial advice. To discuss your situation, in particular, talk to your local adviser.
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