LVR loophole highlighted
A loophole in applying LVR restrictions means home owners are struggling to get bridging finance and are effectively shut out of the intensely competitive property market.
Mortgage Express, a mortgage advisory company, is calling for the Reserve Bank to provide greater clarification to banks and financial lenders around LVR restrictions, saying owner-occupiers are finding they cannot purchase property before selling their existing home without triggering new 40 per cent loan to value ratio requirements.
Mortgage Express NZ CEO Sarah Johnston says there is a reluctance among banks and other financial institutions to approve openended bridging finance for home owners in the wake of new LVR restrictions, which are aimed at investors.
If a home owner-occupier has bought before they selling their existing home, technically the second property makes them an investor and the new investor LVR ratio requiring a 40 per cent deposit comes into play, she says.
If investor LVR rules are not applied to the bridging finance, there is a risk that home owner could simply say they had been unable to sell the house and were now keeping it to avoid being classed as an investor.
‘‘It’s very unclear and until that loophole is fixed there are legitimate owner-occupiers who are being shut of out the market because the banks haven’t been given clarification on how to apply the new rules in a ‘buy before selling’ situation.’’
Harcourts NZ CEO Chris Kennedy says its vital LVR restrictions for home owner/ occupiers are clarified for lenders immediately.
‘‘At the moment the situation around borrowing seems extremely messy and unclear. We’ve always been pretty sceptical that the new LVR ratios for investors would slow down the market as planned.
‘‘In an extremely competitive market, homeowners often find themselves trying to buy before they sell to avoid missing out on their dream home. And without clarification around the rules, LVR restrictions appear to be effectively shutting the people out of the market they were designed to help.’’
A loophole in applying LVR restrictions is affecting bridging finance.