From 1 September 2016 we are likely to see higher LVR rules being applied to investors who are borrowing to purchase residential investment property as per the Reserve Bank announcement today.
Under the proposed new restrictions, investors across New Zealand will be required to have LVRs of 60% (i.e. they will need deposits of 40%). Only 5% of residential investment loans will be allowed to have LVRs greater than 60%. Debt-to-income (DTI) ratios could also be applied from 2017.
Reviewing data overseas it seems LVR restrictions do slow down credit consumption and house price growth at the time of being introduced. However, long-term they do not appear to decrease prices.
Higher LVRs could now pave the way for a decrease in the OCR, which may possibly lead to a decrease in short term interest rates, assuming the banks pass same on to borrowers. Our dollar may also continue to fall as it did this morning after the announcement. One hopes inflation will consequently lift.
Understandably this new policy level will affect existing investors and people currently in the process of purchasing property. If assistance is needed, please contact us at GRA.