New-builds not affected by return of loan to value ratio restrictions

The fact is that just because the Reserve Bank says that new-builds are exempt from the LVR restrictions doesn’t mean that the banks actually have to lend up to 80 per cent on them.

When the Reserve Bank announced the return of the loan to value ratio (LVR) restrictions earlier this month, the main focus was, without doubt, on investors. Most banks had imposed a 40 per cent deposit requirement on investment purchases well before the Reserve Bank’s order, but by May 1 this will be mandatory. The exception to the investment deposit rule is new-build properties.

New-builds (defined as properties that are no more than six months old and are purchased directly from the developer) will not require a 40 per cent deposit if they are bought as an investment.

For the last seven years, deposit requirements for investors for new-builds have for the most part been 20 per cent. In a truly rationalthinking economic market, investors who were cut out by the 40 per cent deposit rule would simply start buying new-builds, which would seem to go against the Reserve Bank’s goal of cooling the housing market by removing investors from the buyer pool.

But in the past two weeks, we’ve seen from the lending banks some interesting responses to Reserve Bank’s new rules. ASB first advised brokers that it would not be approving loans to investors for new builds unless that had a 40 per cent deposit and then switched course.

The fact is that just because the Reserve Bank says that new-builds are exempt from the LVR restrictions doesn’t mean that the banks actually have to lend up to 80 per cent on them. And some banks are playing with requiring 40 per cent deposit on new-build investment properties just to get on top of the backlog of mortgages t on their desks.

At the end of the day, newbuilds are good for the economy. A flood of well-built homes on the market would be a good thing for the housing market, good for first homebuyers and good for investors. But over the next three months, both investors and first-home buyers will want to time their pre-approval application for when the banks swing deposit requirements to the more relaxed end of the spectrum.