LVR Restrictions – Play the Game or Bypass it?

loan-restrictions-nzWith new LVR lending restrictions, thousands of New Zealanders are going to find themselves struggling to gain access to an ultra competitive mortgage market. If you are looking to gain a mortgage, and have deposit of less than 20% percent of your future house’s value, you may be in this sticky situation. With less than 10% of the banks new lenders able to purchase high LVR mortgages, you are facing a tough road.

It is for this reason, that many potential homeowners are facing a difficult situation- should they keep applying in the hope of making that 10%, wait it out until they can save a big enough deposit, or try bypass the system completely?

Mortgage Option One
Applying to be in the lucky 10%.
There are a number of criteria that banks will be analyzing when considering whom they should lend to, primarily:

  • Credit history- when they can pick and choose who they lend to, they are less likely to choose those who have a history of bad debt.
  • Job Stability- are you working in a stable job? Unfortunately if you are working in a field that is highly temperamental or seasonal you may struggle to show that your sources of income are likely to be stable in the years to come.
  • Your current financial situation. If you are already going into unarranged overdraft on a regular basis, it will show up on your statements- and show the bank that you may be spending more than you can afford. This should be avoided, as evidence of fiscal responsibility will always helps your case- clever budgeting will not only help you accumulate the savings you require, but may also work in your favour when it comes time to apply for loans.

There are some pros and cons, to going this route that must be considered:


It is the cheapest option usually, as mainstream banks have the cheapest rates (generally).
If you meet the desired criteria, then you will be able to get a mortgage straight off the bat- easy!
The major banks are reputable, with clear protocol etcetera- you are less likely to end up in a difficult situation should you desire to break contract.

There is fierce competition for limited places. Unfortunately, if you don’t meet the criteria, tough luck! You will likely have to try change your circumstances (i.e improving your credit rating) or venture elsewhere.
The Harsh Truth

For many, mainstream banks are not going to be a viable option- at least in the same way they have been in the past. While mainstream banks should always be your first choice when getting a high LVR mortgage, it is likely you will have to look for some of the less traditional methods.

Mortgage Option Two
Making it into the 20% deposit club.

This may sound like an impossible task, however it is worth considering some of the different ways you may be able to access the elusive 20% deposit, these include:

Asking a family member to act as a guarantor or for a personal loan. While this is definitely not an option for all, it is becoming increasingly more common. While it may be a dent to your pride, if it is a viable option it can save you thousands, and get you into your new home faster.

Waiting. I know- depending on your location and personal situation this may be frustrating- or even false economy- for some. That said, if your financial situation is unstable it can be a better option to wait, and in the meantime work on improving your credit history and your finances!

Securing a third party loan to cover the difference between your deposit and the 20% threshold. This isn’t the most desireable option, however it looks set to become increasingly common. Unfortunately these tend to have sky high interest rates, and may prove to be false economy. That said, they do work out well for some, so it can be worth doing the math, and checking out reputable third party/smaller lenders.

Buy the house together with a friend or family member- they own a share of it. At the same time reach a contractual agreement determining who lives there and when you will buy them out at a specified point in time.
While all of these options are complicated and won’t work out for everyone they are worth considering. Particularly in that by allowing you to reach the 20% deposit threshold they are giving you a prioritized customer status- you have more room for negotiation, and are likely to get much better interest rates- which could save you heaps long term!

Mortgage Option Three
New homeowner assistance schemes.

It’s always worth checking out what governmental assistance is or could be available to you! There are a few ways in which you may be eligible for help, such as:

If you have a 10% deposit you may qualify for a ‘Welcome Home’ subsidy, which will insure the loan for the bank, and allow you to avoid (partially) the LVR restrictions, although the details vary dependent on the properties value, and your location.
Furthermore, the Kiwisaver regulations have been further lessened for new homeowners- i.e a $5,000 deposit is now available for couples who earn up to $120,000 jointly. For this reason it is definitely worth checking out your eligibility!
The Bottom Line on NZ Home Loans
Mortgages are expensive. Unfortunately, now more so than ever- particularly for those not already in the market! For this reason, while there are a number of options to bypass these restrictions available, it is worth doing the math and working out what is sustainable for you- and what you will be able to afford in the future. Talk to us about your options on 0800 466 369 or flick us an email about getting a mortgage.

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