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With the Reserve Bank’s new loan rate restrictions put in place since 1 October 2016, real estate investors are now required to provide a 40% deposit for bank loans, with exception to new builds which only require a 20% deposit. In the table below I have broken down some fundamentals to help you better understand these changes.
What’s The Definition of a New Build?
Before 1 October 2016
A property was only considered a New Build before the concrete foundation is poured.
After 1 October 2016
A property is considered a New Build if sold by the original owner within 6 months of the development being completed, and if unlived in.
Do These New Rules Apply To All Banks?
After 1 October 2016 these restrictions apply to all New Zealand’s regulated banks, however non-bank lenders are not bound by these regulations so a lesser deposit may apply.
Is A Cash Deposit Required Under The New Rules?
No, it can come from equity held in other properties. This means you can borrow the full amount of the purchase price, so up to 80% against the new property and the remainder against an existing property.
Do These Changes Affect Existing Property Lending Created Before 1st October?
Existing investment property lending that is currently over the Loan to Value Ratio (LVR) is not affected unless additional lending is required from the lender at which time that lender is required to ‘bring the lending back into line’ i.e. reduce the lending to inside LVR rules. So unless borrowing additional funds from that bank this lending can stay as it is.
Thank you Greg Scott from The Home Loan Shop for providing us with this information.
Greg Scott, The Home Loan Shop
Tele: 04 384 5700
Mob: 027 472 9153
Email: gregscott@homeloanshop.co.nz.
Website: www.homeloanshop.co.nz
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Article written: November 2017