Many changes are occurring in our financial and real estate landscape. LOAN TO VALUE RATIOS (LVRs)
As per my last blog
, the LVR applicable across the whole of NZ for investors of residential property has now been set at 60% by the RBNZ. As I've said in that blog, I doubt very much this is going to cause property prices to drop dramatically although it may slow the pace of growth a little.
Under the new policy a 40% deposit is now going to be required. This policy was to be implemented 1 September 2016 but the banks are already applying it. This is causing complications for some people.
In our Professional Trustee Services division we are already finding some clients are experiencing difficulties:
- When a client was selling a property, the bank required all of the sale proceeds to be paid to them, as they wanted to ensure the remaining loan they had extended to the client was at no more than 60% of the value of the property they had security over. This caused some stress because the client had thought he'd have enough money from the sale proceeds to buy another property. If this could apply to you, ensure your solicitor obtains in writing the full repayment amount the bank is going to require before settlement so you know what resulting funds (if any) you will have from the sale proceeds.
- A client trying to refinance one property to a new lender was told by his existing lender he'd need to repay some of his loan so as to ensure the loan with the existing lender exceeded no more than 60% of the property's value. To avoid this, have your loan broker or solicitor pre-check this scenario.
- One client had entered into a long-term agreement for sale and purchase and was about to settle. He was told by the bank that he'd need to put additional funds into the purchase in order to draw down the loan. A nasty surprise. Assume nothing and check in advance to avoid this issue.
It's at times like this where the advice we give to clients becomes so valuable. For years, we've advised clients to use two or more banks in their financial affairs.
Also be aware that further macro prudential tools such as debt-to-income (DTI) may be introduced in the future. People should be thinking already what effect (if any) this will have on them and their affairs.
Full discussion on the LVR and DTI can be found on the video of my presentation at the 2016 Trust and Property Seminar
. REAL ESTATE
Auckland Council released the Independent Hearing Panel's Unitary Plan on 27 July 2016. The Panel recommends greater intensification to permit 422,000 additional dwellings to be constructed to cope with existing and future demand. To enable this to occur, rezoning will be implemented along with rule changes to permit more housing to be built on less land. Undoubtedly some owners will be happy with this outcome, as you value land for its highest and best use. Consequently, property values are likely to increase in such cases. Of course to ensure you capitalise on this, you need to first identify where opportunities exist for intensification and secondly, you need to understand (prior to purchase) the financial aspects of the transaction. GRA Property School
provides this knowledge.
If you are having any difficulties or need advice on the above, please contact us and we'll try to assist.