LVR consequences
2617POSTED:
GRA Blogs
Articles by The Professional Trustee Team
Many changes are occurring in our financial and real estate landscape.
LOAN TO VALUE RATIOS (LVRs)
As per my last blog on the proposed LVR rules, the LVR applicable across the whole of New Zealand for investors of residential property has now been set at 60% by the RBNZ. As I've said in that blog, I doubt very much this is going to cause property prices to drop dramatically although it may slow the pace of growth a little.
Under the new policy, a 40% deposit is now going to be required. This policy was to be implemented 1 September 2016 but the banks are already applying it. This is causing complications for some people.
In our Professional Trustee Services division we are already finding some clients are experiencing difficulties:
- When a client was selling a property, the bank required all of the sale proceeds to be paid to them, as they wanted to ensure the remaining loan they had extended to the client was at no more than 60% of the value of the property they had security over. This caused some stress because the client had thought he'd have enough money from the sale proceeds to buy another property. If this could apply to you, ensure your solicitor obtains in writing the full repayment amount the bank is going to require before settlement so you know what resulting funds (if any) you will have from the sale proceeds.
- A client trying to refinance one property to a new lender was told by his existing lender he'd need to repay some of his loan so as to ensure the loan with the existing lender exceeded no more than 60% of the property's value. To avoid this, have your loan broker or solicitor pre-check this scenario.
- One client had entered into a long-term agreement for sale and purchase and was about to settle. He was told by the bank that he'd need to put additional funds into the purchase in order to draw down the loan. A nasty surprise. Assume nothing and check in advance to avoid this issue.
Also be aware that further macro prudential tools such as debt-to-income (DTI) may be introduced in the future. People should be thinking already what effect (if any) this will have on them and their affairs.
REAL ESTATE
Auckland Council released the Independent Hearing Panel's Unitary Plan on 27 July 2016. The Panel recommends greater intensification to permit 422,000 additional dwellings to be constructed to cope with existing and future demand. To enable this to occur, rezoning will be implemented along with rule changes to permit more housing to be built on less land. Undoubtedly some owners will be happy with this outcome, as you value land for its highest and best use. Consequently, property values are likely to increase in such cases. Of course to ensure you capitalise on this, you need to first identify where opportunities exist for intensification and secondly, you need to understand (prior to purchase) the financial aspects of the transaction. GRA Property School provides this knowledge.
If you are having any difficulties or need advice on the above, please contact us and we'll try to assist.
The Professional Trustee Team
© Gilligan Rowe & Associates LP
Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.
Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.
Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
Comments
Testimonials
The seminar last night was brilliant. We ourselves are seasoned investors. We are already doing it. We are also clients of GRA. Have been so for over 10 years. Last nights seminar was affirming and I have encouraged younger members (adults in their 20s) of our family to attend. I am feeling so excited about my portfolio and the Auckland property market. I will go on to GRA books and order the two books Matthew promoted. - Kristine, April 2018
Gilligan Rowe and Associates is a chartered accounting firm specialising in property, asset planning, legal structures, taxation and compliance.
We help new, small and medium property investors become long-term successful investors through our education programmes and property portfolio planning advice. With our deep knowledge and experience, we have assisted hundreds of clients build wealth through property investment.
Learn More
Free Resources, Tools & Downloads
