40% deposit required for Property Investors
19 June 2016
40% deposit required for Property Investors
Wow! I'm amazed that the Reserve Bank has finally done something!
From 1/9/16 property investors will require a 40% deposit. Also the Reserve Bank wants banks to start applying this new policy straight away.
This is going to make property investing very hard for new investors, as they will either need a large cash deposit, or else great equity in their existing personal home.
Past scenario (non Auckland)
Personal house worth $600,000, say current debt of $400,000 - Bank would lend up to 80% or $480,000, so $80,000 available
Could buy an investment property for $400,000 with 100% debt - Bank would lend 80% or $320,000 plus use the $80,000 from personal house.
Total assets $1 million and total debt $800,000, so at 80% Loan to Value Ratio (LVR)
Current scenario banks are likely to adopt from today
Personal house worth $600,000, say current debt of $400,000 - Bank would lend up to 80% or $480,000, so $80,000 available
Could buy an investment property for $200,000 with 100% debt - Bank would lend 60% or $120,000 plus use the $80,000 from personal house.
Total assets $800,000 and total debt $600,000, so at 75% Loan to Value Ratio (LVR) overall
So in this example, the investors buying power would have halved!
Existing investors will also find these rules tough, even if they are in a good position!
Established long term hold investor
Number of properties worth $3 million
50% LVR being $1.5 million of debt - very good and safe LVR
Want to buy a new rental for $800,000 with 100% debt.
This would move the LVR on the rentals to 60.5%, so without a personal house being included, this probably wouldn't be possible!
Debt to Income restrictions - "Wheeler also said work was also progressing on debt-to-income restrictions"
Non bank lenders - There are still non bank lenders available who are not restricted by the Reserve Bank rules, so if you are looking at buying it might be worth talking to your mortgage broker about this option.
Ross
