The Reserve Bank of New Zealand (RBNZ) announced yesterday that the loan-to-value ratio (LVR) restrictions that they put in place back in 2013 will be removed from 1 May, for 12 months.
The RBNZ took a week to consider the change, which is extremely short by their usual standards. They said this change is "to ensure LVR restrictions didn't have an undue impact on borrowers or lenders as part of the mortgage deferral scheme implemented in response to the Covid-19 pandemic". This means that those who purchased their home with a low deposit (below 20% deposit) should be able to apply for a mortgage deferral if they are affected by Covid-19 and banks cannot use their LVR as a reason to decline.
What does this mean for home buyers?
With the majority of the country being affected in some way from Covid-19 and many households now having lower disposable income, Kiwis are hoping that this new rule will help with purchasing a new home or a first home. However, it is unclear at this stage as to what the banks may decide in terms of their credit policy.
Many commentators are expecting banks to tighten up their lending policies, which generally makes it harder for people to borrow money. Will the removal of the LVR restrictions offset lower incomes and tighter lending criteria? It may be a hard argument.
Of course, those whose income isn't affected by COVID-19 will be in a good position to climb the property ladder, and definitely should take advantage of the current market.
What about property investors?
Property investors will be the ones who really benefit from this change. Removing LVR restrictions means they will now be able to access and leverage more of their existing equity to grow their portfolio.
As mentioned in our previous blog, this change to LVR rules is mostly aimed at keeping or slowing down the fall in house prices. This change won't benefit everyone, but it will create enough transactions in the market to keep the demand for housing from falling too much.
You can view the original press release from the Reserve Bank of New Zealand here.