When the Reserve Bank of New Zealand (RBNZ) introduced restrictions on loan value ratios (LVRs) last year, it was to deal with upcoming pressures in the housing market. In its most recent Financial Stability Report (FSR), the RBNZ has decided to keep these in place, but due to pressures elsewhere. So what does this mean for you, as a budding buyer of investment property in our fair country?
Get your deposit right
The restrictions mean that banks cannot give out as much financing that is high-LVR. That is to say, loans with deposits of less than 20 per cent might be less likely to be approved, as banks currently can only have 10 per cent of their lending allocated toward high-LVR loans.
So if you are looking at buying a property, it might pay to make sure you have a healthy deposit! It may take a little longer, but it can give you a better chance of making your investment.
When does it end?
Graeme Wheeler, governor of the RBNZ said in the FSR that this restriction would be removed once inflation in house prices is moderated, and the risks of over-activity in the housing market simmer down a bit. In the November FSR, he said there was a slight risk of increased inflation in the future, which means the restrictions will likely stay in place for some time yet.
So you might have to play the waiting game for a little longer on your journey to financial independence. But that is what building value in your property portfolio is all about! By slowly gathering funds and acquiring property with the right investment advice, you build equity for the long-term that could see you through retirement easily.
Contact us if you want to find out more about getting into the property market.
Here's to your financial independence!
Daniel Carney
Authorised Financial Adviser / Investment Property Expert