Banks surprise move on 30% equity LVRs shocks investors

July 20, 2015 at 12:39 PM

Here at LoanPlan we are finding that due to backlogs in the banking system, some clients who had lodged application three days ago have been shut out by the move. 

Westpac has already put the restrictions in place and last week ASB followed suit, saying that they will only honour pre-approvals issued prior to 16 July (today) for property investors. 

We have one client who lodged three days ago, but because of bank backlogs, he does not qualify – I’m fighting it because he is in the middle of a negotiation. 

However, ASB has informed us that they will honour current pre-approvals until their expiry date (provided the property settles before the expiry date). This means that any property investors who got in on time have just 60 days – ASB’s standard period – to find, negotiate and settle the sale and purchase, starting from when they received their pre-approval.

We believe it is a bit unfair on those trying to beat the Reserve Bank’s rules that will force residential property investors in the Auckland Council area to provide a deposit of 30 per cent from 1 October, because it closes out as of now anybody wanting pre-approval to purchase an investment property in Auckland with less than 30% equity (ASB defines the area as any that pays rates to the Auckland City Council, including the regions that were incorporated into the supercity, for example, Warkworth).

The issue is that it is only really hurting the mum and dad investor. The major property investors, people who own multiple properties, will not be affected because they will have the necessary equity anyway. In effect it hurts a tried and true retirement strategy for many Kiwis.

The banks are acting now because they want to ensure that their book complies with the new LVR restrictions come 1 October, which require residential property investors to have a deposit or equity of at least 30 per cent.

Banks are obligated to comply, and there are heavy penalties if they don't, so they’re taking steps to ensure that their book is not committed to something that isn’t allowed under the new regulations – but this will have caught a lot of people by surprise. 




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