Reserve bank 30% deposit rules hurt entry-level investors

Reserve bank 30% deposit rules hurt entry-level investors and first home buyers

Reserve Bank rules that will force residential property investors in the Auckland Council area to provide a deposit of 30 per cent from October is another blow for first homebuyers, as well as mom and pop Kiwis trying to save for retirement.

Auckland mortgage broker and principal of integrated financial services provider LoanPlan, Christine Lockie, said the Reserve Bank restrictions, which come into effect in October, will only make it more difficult for the average person.

“First home buyers trying to get a foot in the property market are also going to be disadvantaged. We have a lot of young couples who have bought an investment property and gone to live with mum and dad, at least until they can afford to move into the new property. Now what will they do?

“This will also affect mom and pop investors, who rely on equity in their existing home to help leverage them into an investment property.

“As with the LVRs affecting first time homebuyers, all these restrictions will do is cause pain for the entry-level market.”

Ms Lockie says established investors should not have a problem meeting the 30 per cent deposit requirement, and overseas investors will not be affected because they mostly pay cash.

There are, however, a number of alternatives for mom and pop investors, including the danger of turning to non-bank lenders.

“On the whole I would not recommend non-bank lenders for entry level investors because that kind of finance costs too much money to service.”

She said the first step for mom and pop investors is to get a registered valuation on their existing property to determine what equity they have, because that’s what the banks will rely on – particularly if Capital Values (CVs) and Quotable Values (QV) don’t show the necessary equity.

Other options include:

· Buy outside of Auckland (although at the moment there is no clarification of what is in Auckland and what is outside Auckland); or
· Purchase apartments instead.

“I expect there will be a last minute flurry of investment buying before October because, despite the Reserve Bank’s position that it expects banks to observe the spirit of the changes now (and not lend more to investors before October), it is currently more or less business as usual.

“The only change I’ve experienced at the moment is some banks requesting more information in order to make the ‘deal work’.”

ENDS

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