Banks surprise move on 30% equity LVRs shocks investors

Press Release: Immediate

LoanPlan Mortgages and Finance

16 July 2015

Banks surprise move on 30% equity LVRs shocks investors

The mortgage door has closed suddenly for some mum and dad property investors with less than 30 per cent equity following an announcement by ASB last night that it will issue no more pre-approved mortgages for property investors in the Auckland area (where equity is less than 30%).

Auckland mortgage broker and principal of integrated financial services provider LoanPlan,Christine Lockie, said that due to backlogs in the banking system, some clients who had lodged application three days ago have been shut out by the move.

“Westpac has already put the restrictions in place and last night ASB followed suit, saying in a letter to us that they will only honour pre-approvals issued prior to 16 July (today) for property investors with less than 30% equity

“I have one client who lodged three days ago, but because of bank backlogs, he does not qualify – I’m fighting it because he is in the middle of a negotiation.”

Ms Lockie said ASB informed them that they would honour current pre-approvals until their expiry date (provided the property settles before the 1st of October).

This means that any property investors who got in on time have just 60 days (ASB’s standard pre-approval period) to find and negotiate the purchase, starting from when they received their pre-approval. Settlement must be prior to 1st October.

“It is a bit unfair on those trying to beat the Reserve Bank’s rules that will force residential property investors in the Auckland Council area to provide equity of 30 per cent from 1 October.

“It closes out anybody wanting pre-approval to purchase an investment property in Auckland with less than 30% equity.”

ASB defines the area as any that pays rates to the Auckland City Council, including all the regions that were incorporated into the supercity i.e. Auckland City, Manukau City, Waitakere City, North Shore City, Papkura District, Rodney District and most of the Franklin District.

“The issue is that it is only really hurting the mum and dad investor and local buyers entering the investment market.

“The major property investors, people who own multiple properties, will not be affected because they will generally have the necessary equity anyway. In effect it hurts a tried and true retirement strategy for many Kiwis.”

Ms Lockie said the banks were acting now because they want to ensure that their book complies with the new LVR restrictions come 1 October, which require residential property investors buying in Auckland to have a deposit or equity of at least 30 per cent.

“Banks are obligated to comply, and there are heavy penalties if they don't, so they’re taking steps to ensure that their book is not committed to something that isn’t allowed under the new regulations – but this will have caught a lot of people by surprise.

“We also have to wonder if this will have a further effect on available rental options in the near future. Will there be a further shortage of rentals? Will tenants have to pay yet higher rentals?” she said.

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