Reserve Bank imposes 40% deposit requirement on all investors

Reserve Bank imposes 40% deposit requirement on all investors

The Reserve Bank has grave concerns for the outlook of the NZ housing market. So much so, they are making it clear that investors are on the radar.

As of the 1st September, all trading banks must implement the following Reserve Bank rules:

  1. Only 5% of lending to investors can be over 60% LVR. Meaning the bulk of investment deals need a 40% deposit.
  2. Only 10% of owner-occupier deals can be above 80% LVR

There has been evidence in the media lately that investors are buying proportionately more property than owner-occupiers, so the proposed Reserve Bank rules are an attempt to level the playing field, and curb the ability of investors to artificially inflate the price of houses by reducing demand.

The million dollar question is; will this work?

The trading banks have traditionally been the "go-to" for many investors. However, in recent years non-bank lenders have come more and more into the fray. Non-bank lenders are not registered banks, therefore they do not have to play under the Reserve Banks rules. Non-bank lenders such as Resimac and Liberty have very competitive interest rates and can lend to high LVR's for investors. In some cases, an investor can secure lending up to 90% LVR and interest rates begin at 4.95%.

I believe there will be a small reduction in demand from investors, but not much. With immigrants still pouring into the country (nett 80,000 people per annum) and developments not keeping up with demand, I believe house prices will continue to rise which gives investors more equity to leverage and buy more property. Non-bank options will become a viable option in the toolkit for investors.

Reserve Bank imposes 40% deposit requirement on all investors

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