Getting around the LVR rules

Low deposit? No deposit? Think you can’t buy a house, flat or apartment? Think again.

Sure you’ve heard that the Reserve Bank of New Zealand (RBNZ) has restricted banks from lending more than 80% of the value of the home.

Don’t worry. There are lots of ways to work within the system and plenty of Kiwis are buying homes with 10% or even smaller deposits.

I’ll let you into a little secret. Here’s how they do it:

Thanks bank: In early 2014 the RBNZ announced that it would restrict banks’ ability to offer loan to value ratios (LVRs) of less than 20/80. That meant most buyers would need a 20% deposit to get a loan. The trick here is that banks are still allowed to do 10% of their lending on low deposit loans. There is no reason why your loan shouldn’t fall into that 10% category.

Thanks Housing New Zealand: If you qualify for a Welcome Home Loan, which is supported by Housing New Zealand, you’ll only need a 10% deposit. There are house price and income caps, which mean you can’t be a high earner or want to buy anything too flash.

Thanks housing association: Housing associations such as the New Zealand Housing Foundation allow you to buy part of a house, but live in the whole thing yourself. You share the ownership with the association until such time you have the money to buy the whole house.

Thanks KiwiSaver: You still need a 20% deposit with KiwiSaver. But plenty of people aren’t aware that they can withdraw their own savings and their employers’ contributions from KiwiSaver when they buy their first home. That’s as well as the deposit subsidy, which can add up to $10,000 for a couple.

Thanks mum and dad: If you’re lucky enough to have parents who are willing to help you with the deposit then be very grateful. Often banks still want some evidence that you’ve saved some of the deposit yourself. They argue, quite rightly in my opinion, that if you can’t save anything towards a mortgage you may not be that great at making monthly repayments.

Thanks mortgage broker: Mortgage brokers know how the system works. They are aware which banks are willing to lend on lower deposits at any one time. I shouldn’t say this, but they can sometimes tell you how to get around the rules about having to have saved the deposit. What’s more they can also plead your case.

Thanks credit union: Credit unions sometimes have different lending criteria to banks. NZCU Baywide, has “low to no deposit” home loans take into account how much rent you’re paying to determine the size of the loan you can borrow. NZCU Auckland offers up to 95% of the property value on its Big Break mortgages, or a 100% loan up to $200,000 in its Get Started package.

Thanks RBNZ: It’s not well known, but the 20% LVR rules are only temporary. There’s a chance – albeit not certain – that the rules may be relaxed in the near to medium future. We’ll wait and see.

Thanks new home builders: New homes are exempt from the RBNZ’s LVR restrictions. This is a bit of a double-edged sword as new homes tend to be more expensive than existing homes. But this exemption is good for people who wanted to buy a new home anyway.

Finally, beware of what you wish for. Sometimes if you borrow more than 80% of the value of the home you’re subject to a hidden cost called a low equity premium (AKA mortgage lenders insurance or mortgage indemnity insurance). It may be worth saving a little extra to avoid this.

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