Landlords unaware of new LVR laws - Westpac survey

Property Investors, particularly in Auckland, are worryingly unaware of the detail and implications around the new loan-to-value-ratio (LVR) regulations due to come into to effect at the end of this week, 1 November. A Westpac NZ online survey of 2000 property owners found that only 5% knew when the changes will come into effect, nearly 30% had not heard anything and 53% had heard something but did not know the details. Of current property investors who are looking to buy again in the next 12 months, 17% had not heard anything about the pending changes and 50% had heard about them but knew no details. Among rookie investors, those without an investment property but looking to buy one in the next 12 months, more than 21% had heard nothing about the new LVRs and an alarming 61% had heard something but knew no details. Acting General Manager Westpac Consumer Banking and Wealth, Jamie Farmer, says the LVRs are just one of a raft of new regulation around property investment and he urges investors to be thorough in their research. "Any prudent property investor should have, or should be, making themselves fully aware of the new regulations and what they might mean to them as part of their planning, research and the deposit they require," he said. "Two questions they want to ask themselves is ‘what do I want to achieve’ - capital gain or yield - and ‘what do I need to achieve that.’ Answer those questions and they can then start formulating a plan to get them there and that should include understanding the regulations." The Reserve Bank of New Zealand (RBNZ) is altering existing LVR rules to focus on residential rental property investors in the Auckland region. The alterations mean that borrowers will generally need a 30% deposit for a mortgage loan secured against Auckland residential investment property. Restrictions on loans to owner- occupiers in Auckland will continue to apply, with banks allowed to make up to 10 %of their new mortgage lending on owner- occupied property to borrowers with LVRs exceeding 80%. Restrictions outside Auckland are being eased after 1 November. Banks will be able to make up to 15% of their new mortgage lending to borrowers with LVRs exceeding 80%, regardless of whether lending is secured against owner -occupied or a residential investment property. With the full heat yet to come out of the Auckland market the RBNZ believes a level of that heat has come from investors. The new regulations are intended to restrict investor activity. The Westpac survey showed a good number of Auckland investors are already looking at other regions with 25% of Auckland based prospective investors planning on buying outside Auckland as a result of the changes. How that will impact first home buyers in the regions is yet to play out. In addition, other changes are happening that investors need to be aware of. From 1 October the two year ownership rule is to be better enforced so that vendors who make a profit on the sale of a residential property (other than an inherited estate or family home) which is sold within two years of its purchase-- can expect to be taxed on capital gains. Also, non-residents buying or selling property other than their main home must have a New Zealand IRD number and bank account.