The Reserve Bank’s LVR restrictions have severely impacted first home buyers’ ability to make that step onto the property ladder.
But with a housing shortage crisis looming, the rules were relaxed last year, to encourage people to build, rather than buy.
Mortgage advisor Brendan May from the Mortgage and Insurance Shop has seen an increase in first home buyers sidestepping the restrictions by building their first home.
Read on to get the low down on the LVR restrictions, and see if you’re eligible for construction finance.
Most of us know by now, that in 2013 buying your first home or upgrading your home got harder. The Reserve Bank put in place some speed limits, restricting New Zealand banks’ volume of lending to people with less than 20 per cent deposit.
These are called LVR (Loan to Value) restrictions. The restrictions have had a serious impact on all would-be property purchasers, particularly people looking to buy their first home.
Initially the LVR restrictions included new house builds, but this changed during 2014 on the back of feedback provided to the Reserve Bank.
Recognising the need for more housing in New Zealand, the Reserve Bank relaxed its construction lending somewhat, leading to more people deciding to build.
So what’s the banks’ take on all this?
As mortgage advisors, we have access to a number of lenders who have various construction policies.
As a general rule, the banks will look to lend up to 90% of the cost of construction, assuming the contract is either a fixed priced or turnkey contract.
In some cases we may be able to source finance of up to 95% of the cost of construction.
For land to be included in the 90% LVR range, banks may need to have the build financed as a Land and Building package, whereby the total cost covers the land and building of a home.
In order to apply for construction finance from the banks, you need to have the following:
- A Full Loan application – the Mortgage and Insurance Shop will help you through the process
- Details of your income and expenses (ie your ability to service the lending)
- Costs of Land and Construction
- End value once construction is completed
- Building Contracts and Consents
- Code of Compliance at completion
If you’re considering building, have a chat with us so we can talk you through the entire process and assist you in obtaining pre-approved finance to ensure you have the ability to build your dream home.
David Reid Homes provides fixed-price, turnkey packages that can assist you in meeting the requirements under the current LVR restrictions.
Brendon May, Mortgage Advisor, The Mortgage and Insurance Shop