It has been announced that the loan-to-value ratio (LVR) restrictions will be eased, allowing investors to borrow a higher percentage of the property value. Previously, the borrowing limit for investment properties was 60%, but it has now been increased to 65%. Additionally, investors interested in purchasing a new property will only be required to put down a 35% deposit, rather than the previous 40%. New Build properties remain at 80% lending.
While this change may appear minor, its true significance lies in the collective impact of these two adjustments. Consider an investor who currently holds a rental property worth $800,000 with a $300,000 mortgage. Prior to the new regulations, this individual could only afford to purchase another property valued at $450,000. However, with the updated LVR rules in place, the same investor can now afford to purchase a property worth $653,000. This represents a substantial $103,000 difference in purchasing power.
The reason for this increase is twofold. Firstly, the higher LVR allows investors to borrow more against their existing investment property. Secondly, the lower deposit requirement for new purchases means that investors need to put down less money upfront.
While not all property investors will benefit from this change to the same extent, some will find themselves able to make purchases that were previously out of reach.
As for the broader property market, it is worth noting that Auckland’s average property value remains 16.7% ($187,000) higher than pre-Covid levels and 20.3% ($221,000) higher than values five years ago.
Furthermore, the Reserve Bank of New Zealand is expected to loosen loan restrictions in June, which may help to boost buyer confidence. While there may be fewer new listings, this could create a more competitive market for those properties that are available.
According to data, new mortgage registrations by investors in Auckland rose to 24.3% in Q1 2023, up from 21.9% in the same period last year. Similarly, investors’ share of purchases in Canterbury and Wellington during Q1 this year were 22.5% and 17.9%, respectively.
Finally, the Reserve Bank of New Zealand has indicated that it intends to reduce interest rates by the end of this year or the beginning of 2024. While these reductions will not occur at the same pace as previous rate increases, they do provide some relief and encourage investors to consider shorter-term fixed rates for their mortgages.
So we are feeling good about the future!