How to get around loan to value rule

Matamata Chronicle - - Property -

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.

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