How to get around loan to value rule
Recent flattening of the property market has been put down to investors pulling out.
This is a direct result of the Reserve Bank of New Zealand introducing a 40 per cent loan to value lending criterium for investment properties.
Which means if a house is bought for $500,000, a deposit of $200,000 is required.
But property investment is still attractive in New Zealand, and reasonably safe, Property Council Waikato branch president Thomas Gibbons says.
However, there are ways to get around the LVRs.
1. Go see a mortgage broker. Banks are given a leeway with lending which does not require the 40 per cent minimum. Mortgage brokers should know what banks are at capacity and which are not.
2. Banks circumvent the system by providing both a mortgage and a top-up loan.
‘‘That practice has been going on for a while, the banks have sometimes said when they don’t have enough equity for a home loan they will bridge the gap through a personal loan or a loan for some other asset.’’
3. Borrow from non-bank lenders as the same rules do not apply.
‘‘It does have its dangers of people sometimes extremely high interest rates.’’
4. Buy a property yet to be built off the plan, where no deposit is required until fully built - a year or two down the track. When fully built, chances are it will have increased in value and sold at a profit.
‘‘There are different rules for sections and properties bought off the plans and there’s a broader ability to get through with less equity essentially. There is obviously risks involved with buying off the plans.’’
5. Join forces with others and form a syndicate.
‘‘It is an option for people, if it’s purely an investment there is nothing wrong with getting other like minded investors involved as long as you are all aligned about how you want the investment to work.’’ 6. Borrow from overseas. ‘‘In terms of the priority of those options, that would have to be the last option.’’
There are ways around the Reserve Bank’s tight restrictions on lending to property investors, in a bid to control the risks.