The banks have long been at the mercy of loan-to-value ratios (LVR) when it comes to lending. But upcoming LVR changes will impact them further and could well drive even more high-quality loans to need specialist lending– which creates opportunities for investors like you.
At SCP, we are independent of the Reserve Bank but licensed by the Financial Markets Authority (FMA) and for almost 25 years we’ve been taking a conservative approach to lending and have set our own LVR rules.
An LVR is the ratio between the size of someone’s mortgage and the property’s resale value.
The Reserve Bank first introduced LVRs nearly eight years ago to help curb rapid house price growth and an increase in low-deposit loans. Some would say the response has helped to dampen housing market increases, but it’s also put more pressure on people who are navigating the housing market.
From October 1 the current Reserve Bank LVR rules are set to change so only 10% of their lending on owner-occupier houses can be outside of LVR range. And already at least 95% of new bank lending to residential property investors needs to go to borrowers with deposits of at least 40%.
It’s not uncommon for us at Southern Cross Partners to lend at 65% LVR. But we do also see situations where people will be short of LVR ranges for a small period and have a plan for getting back into an acceptable LVR range.
The latest LVR changes are likely to see banks tighten the purse strings even more. They’ll become even pickier with loans.
We are already receiving lots of applications from borrowers who urgently need finance to purchase investment properties. Typically, they’ve got part way through the process with a bank, but the bank suddenly moves the goalposts. In fact, we are seeing more high-quality borrowers coming directly to us and not going through the banks at all.
This latest LVR change will likely push even more high-quality loans to the specialist lending sector.
We already have the luxury of being picky with what we lend on and will continue to do so.
But we expect the level of enquiry from our financial advisor network to keep increasing, as the banks move the LVR goal posts.