New homes exempt from LVR rules

Tuesday 10 December 2013

A Reserve Bank decision to exempt new construction from the loan-to-value restrictions will be a double benefit, says a broker who has been campaigning for the change.

By Susan Edmunds

The RBNZ today announced that lending to customers wanting to build new homes would not count towards banks’ low-deposit lending cap.

“The Reserve Bank has recently consulted with the building industry and banks on the impact of LVR restrictions on residential construction activity,” Deputy Governor Grant Spencer said. “While high LVR construction lending is only around 1% of total residential lending, it finances around 12% of residential building activity.

“This exemption means that low deposit lending will fall outside the 10% speed limit if it is financing the construction of a new house or apartment.

“However, any new low deposit construction loans will still need to meet the internal risk requirements of the lending banks.”

He said it would help support the supply of new housing and reduce some of the pressure arising from excess demand in the property market.

Ian Webb, of New Build Residential Construction Lending, said he was pleased and relieved. “I couldn’t be more delighted.”

He said the Reserve Bank had underestimated the impact of its decision. “In construction, we lose a whole season if the change isn’t made quickly. Approvals had dropped 50%, which is huge for construction.”

Webb said it would encourage people to get into the supply side of the housing market by making it advantageous for them to build rather than buy second-hand. “I hope we’ll see a massive influx.”

Comments from our readers

On 10 December 2013 at 12:16 pm Glyn Slade said:
An excellent pragmatic decision. A bit more clear thinking by the Reserve Bank, when the LVR restrictions were promulgated, might have seen this decision incorporated from the start! Another suggestion for the Reserve Bank to consider, that could alleviate their fear of property price rises across NZ, or a fear of price collapse leaving the financial market (banks etc) exposed to high LVR lending would be: Any foreign (i.e non NZ citizen)person wishing to purchase a property should be limited to purchasing appropriate residential land and building a new home within certain time limits so they cannot 'land bank'. This would a. add to our housing stock; b. leave existing stock to be purchased by NZ citizenry; c. remove them from competing for homes, that are relatively cheap by their standards, and for which they appear to have 'limitless' funding capacity compared to our 'poor' first home buyers. I am all for financial stability, but let's get it right - stop penalising and disenfranchising the young people who are after all New Zealand's future. Happy to be quoted :) Kind regards

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