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SEP 05 2019
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Changes to bank lending policies: An update on your borrowing capacity and high LVR loans

Posted by: Connie in First Home Buyer

New Zealand banks change their lending policies regularly. In this week’s blog, we’ll update you on some key changes around how they calculate your borrowing capacity, before we discuss the rules surrounding loans with high loan-to-value ratios (LVR) and how these changes might affect you.

Changes to bank lending policies: An update on your borrowing capacity and high LVR loans

Video Timeline

Update one: Have you got your 2019 financial statement ready? 01:05

Update two: Good news! Your current borrowing capacity has improved 01:43 

Update three: 2019 high LVR rules have changed 03:43

Update one: Have you got your 2019 financial statement ready?

If you are self-employed and plan to apply for a new loan or make changes to your existing one soon, you must get your 2019 financial statement – covering the period from 1st April 2019 to 31st March 2019 - completed first. 


Update two: Good news! Your current borrowing capacity has improved 

Recently, New Zealand’s major banks - including ANZ, BNZ, ASB, and Bank of China - have reduced their mortgage test rates. 

What’s a test rate?

When banks or other mortgage lenders evaluate your borrowing capacity, they will use their mortgage test rates to “stress test” your loan repayment ability. The test rates are higher than the actual mortgage rates by 4% to 4.5%. Which means, should your actual mortgage rates rise in the future, you should be able to cope with your rising loan repayment.


How can the dropped test rates affect your borrowing power?

Several factors affect your borrowing power; test rates are just one of them.

The lower the test rates, the higher your borrowing capacity. Compared to the past, you might be able to borrow a further $10k to $100k now.

Calculating how much of a loan you can afford is a complex process. Your borrowing power depends on other factors, too, such as your income, your current debts, and your current lender. To get a better understanding of how much you can borrow for your home, you should engage a professional mortgage broker sooner rather than later. 


Update three: 2019 high LVR rules have changed

What’s your LVR?

A loan-to-value ratio (LVR) measures the proportion of your loan amount against the value of your property. 

LVR is calculated by dividing the amount of the loan by the value of the property. Say you borrow $800k against a property valued at $1mil, then your calculated LVR is 80%.

When it comes to how much of a deposit you need to buy a house in New Zealand, you generally need at least 20% for your family home, or 30% for an investment property. If your deposit is lower than the preferred percentage, most lenders will consider it too risky. In other words, this is a high LVR loan as you have a low deposit.

Some New Zealand first-home buyers and property investors might find it hard to get a low deposit home loan approval from their banks. It’s not impossible, just very hard. Many New Zealand banks have their own rules on high LVR loan application.


Let’s look at how New Zealand’s major banks have updated their 2019 high LVR rules:

ANZ offers high LVR loans up to 90%. However, they apply a low equity premium (LEP) fee for lending on LVRs of over 80% (for owner-occupied) or over 70% (for investment properties). As borrowers are required to pay their LEP fee upfront, they need additional cash to pay it. Borrowers can include the LEP fee into their loans, but the final LVR including LEP has to be calculated within 90%.

Likewise, Westpac recently increased their high LVR home loans to 90% for owner occupied, and 85% for investment loans. However, they do place strict requirements on their borrowers. For example, to qualify for a high LVR loan with Westpac, borrowers should have a stable income and little personal debts.

BNZ offers up to 95% on high LVR loans. However, this is only available for their existing customers. BNZ defines a current customer as someone who already has their job income credited to a BNZ account.

ASB has increased their high LVR loan to 90%, but this door is only open to their current customers. Likewise, this is only available for their existing customers. Additionally, to qualify for a high LVR loan with ASB, borrowers must be New Zealand citizens or permanent residents.


In the past, many New Zealand lenders didn’t offer special interest rates and cashback to their high LVR loan borrowers. Now that situation has changed. 

Let’s look at how New Zealand’s major banks offer special mortgage rates and cash back to borrowers with low deposits.

ANZ offers high LVR loan borrowers rates that are up to 0.2% lower than their standard mortgage rates. They also offer cashback up to 0.5% of the borrowers’ loan amount.

Westpac offers special mortgage rates, plus apply a LEP fee. They also offer $2,000 cashback to their low-deposit loan borrowers.

As at the time of writing, BNZ hasn’t provided discounted mortgage rates yet, but they offer cashback of up to 0.5% of the borrowers’ loan amount  

ASB offers mortgage rates that are up to 0.2% lower than their standard rates. They also offer $1,500 cashback.


Please note: New Zealand banks do change their lending policies on high LVR loan applications very regularly. While policies on high LVR loans vary from lender to lender, we highly recommend you engage a professional mortgage broker sooner rather than later, so that you can successfully secure your low-deposit loan.


How do you get low-deposit home loans?

Prosperity Finance keeps strong relationships with many New Zealand banks and other great lenders. We understand the criteria that you need to meet to successfully secure your low-deposit loan. While policies on high LVR loans vary from lender to lender, we’re happy to navigate the available options for you. 


Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.


Prosperity Finance - here to help

For first-home buyers or property investors needing a low deposit loan, we’re happy to help. Prosperity Finance understands the complexities behind the calculations and high LVR rules. We manage your home loans and investment loans from beginning to end, and empower you to make the best long-term, informed decisions. As mortgage brokers, we’re here to help. Give us a call today on 09 930 8999. 

Other Recommended Blogs:

How much more mortgage can I afford? (Tips to quickly increase your borrowing power by 800k)

Check how much you can borrow with our commercial property borrowing calculator

4 Proven Steps: How First Home Buyers can withdraw their KiwiSaver without confusion

Tags:

New Zealand banks change their lending policies regularly. In this week’s blog, we’ll update you on some key changes around how they calculate your borrowing capacity, before we discuss the rules surrounding loans with high loan-to-value ratios (LVR) and how these changes might affect you.

Changes to bank lending policies: An update on your borrowing capacity and high LVR loans

Video Timeline

Update one: Have you got your 2019 financial statement ready? 01:05

Update two: Good news! Your current borrowing capacity has improved 01:43 

Update three: 2019 high LVR rules have changed 03:43

Update one: Have you got your 2019 financial statement ready?

If you are self-employed and plan to apply for a new loan or make changes to your existing one soon, you must get your 2019 financial statement – covering the period from 1st April 2019 to 31st March 2019 - completed first. 


Update two: Good news! Your current borrowing capacity has improved 

Recently, New Zealand’s major banks - including ANZ, BNZ, ASB, and Bank of China - have reduced their mortgage test rates. 

What’s a test rate?

When banks or other mortgage lenders evaluate your borrowing capacity, they will use their mortgage test rates to “stress test” your loan repayment ability. The test rates are higher than the actual mortgage rates by 4% to 4.5%. Which means, should your actual mortgage rates rise in the future, you should be able to cope with your rising loan repayment.


How can the dropped test rates affect your borrowing power?

Several factors affect your borrowing power; test rates are just one of them.

The lower the test rates, the higher your borrowing capacity. Compared to the past, you might be able to borrow a further $10k to $100k now.

Calculating how much of a loan you can afford is a complex process. Your borrowing power depends on other factors, too, such as your income, your current debts, and your current lender. To get a better understanding of how much you can borrow for your home, you should engage a professional mortgage broker sooner rather than later. 


Update three: 2019 high LVR rules have changed

What’s your LVR?

A loan-to-value ratio (LVR) measures the proportion of your loan amount against the value of your property. 

LVR is calculated by dividing the amount of the loan by the value of the property. Say you borrow $800k against a property valued at $1mil, then your calculated LVR is 80%.

When it comes to how much of a deposit you need to buy a house in New Zealand, you generally need at least 20% for your family home, or 30% for an investment property. If your deposit is lower than the preferred percentage, most lenders will consider it too risky. In other words, this is a high LVR loan as you have a low deposit.

Some New Zealand first-home buyers and property investors might find it hard to get a low deposit home loan approval from their banks. It’s not impossible, just very hard. Many New Zealand banks have their own rules on high LVR loan application.


Let’s look at how New Zealand’s major banks have updated their 2019 high LVR rules:

ANZ offers high LVR loans up to 90%. However, they apply a low equity premium (LEP) fee for lending on LVRs of over 80% (for owner-occupied) or over 70% (for investment properties). As borrowers are required to pay their LEP fee upfront, they need additional cash to pay it. Borrowers can include the LEP fee into their loans, but the final LVR including LEP has to be calculated within 90%.

Likewise, Westpac recently increased their high LVR home loans to 90% for owner occupied, and 85% for investment loans. However, they do place strict requirements on their borrowers. For example, to qualify for a high LVR loan with Westpac, borrowers should have a stable income and little personal debts.

BNZ offers up to 95% on high LVR loans. However, this is only available for their existing customers. BNZ defines a current customer as someone who already has their job income credited to a BNZ account.

ASB has increased their high LVR loan to 90%, but this door is only open to their current customers. Likewise, this is only available for their existing customers. Additionally, to qualify for a high LVR loan with ASB, borrowers must be New Zealand citizens or permanent residents.


In the past, many New Zealand lenders didn’t offer special interest rates and cashback to their high LVR loan borrowers. Now that situation has changed. 

Let’s look at how New Zealand’s major banks offer special mortgage rates and cash back to borrowers with low deposits.

ANZ offers high LVR loan borrowers rates that are up to 0.2% lower than their standard mortgage rates. They also offer cashback up to 0.5% of the borrowers’ loan amount.

Westpac offers special mortgage rates, plus apply a LEP fee. They also offer $2,000 cashback to their low-deposit loan borrowers.

As at the time of writing, BNZ hasn’t provided discounted mortgage rates yet, but they offer cashback of up to 0.5% of the borrowers’ loan amount  

ASB offers mortgage rates that are up to 0.2% lower than their standard rates. They also offer $1,500 cashback.


Please note: New Zealand banks do change their lending policies on high LVR loan applications very regularly. While policies on high LVR loans vary from lender to lender, we highly recommend you engage a professional mortgage broker sooner rather than later, so that you can successfully secure your low-deposit loan.


How do you get low-deposit home loans?

Prosperity Finance keeps strong relationships with many New Zealand banks and other great lenders. We understand the criteria that you need to meet to successfully secure your low-deposit loan. While policies on high LVR loans vary from lender to lender, we’re happy to navigate the available options for you. 


Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.


Prosperity Finance - here to help

For first-home buyers or property investors needing a low deposit loan, we’re happy to help. Prosperity Finance understands the complexities behind the calculations and high LVR rules. We manage your home loans and investment loans from beginning to end, and empower you to make the best long-term, informed decisions. As mortgage brokers, we’re here to help. Give us a call today on 09 930 8999. 

Other Recommended Blogs:

How much more mortgage can I afford? (Tips to quickly increase your borrowing power by 800k)

Check how much you can borrow with our commercial property borrowing calculator

4 Proven Steps: How First Home Buyers can withdraw their KiwiSaver without confusion

Tags: