Restrictions on loan-to-value ratios (LVRs) are explained on The Reserve Bank website as temporary limits on banks to reduce the amount of low-deposit mortgage lending but to encourage the building of new houses they have also had some exemptions, now including a new build exemption for new houses that are being construction or are being purchased from the developer within 6-months of completion.
The New Build Exemption
Loans to people building a new residence are exempt.
This rule was introduced in October 2013 and soon after those original LVR rules came into force the new build exemption was introduced in an effort to ensure that new builds were not going to be impacted.
The borrower must either commit to the purchase off the plans which will typically be a house and land package, or at an early stage of construction. This has now been extended to buying the residence (within six months of completion) from the developer.
The exemption applies for both owner-occupiers and residential property investors and does not prescribe the size of a deposit for new residences. Of course each bank has it’s own policy as well and this means that most banks will still require a 10% deposit.
Other Exemptions For LVR Rules
Some exemptions including the following apply to the LVR rules.
Remediation exemption – loans are exempt if used for remediation (e.g. weather-tightness issues), to bring a residence up to new building codes, or to comply with new rental property standards (for example, insulation). The exemption applies for both owner-occupiers and residential property investors.
Welcome Home Loans – the Housing New Zealand Welcome Home Loan scheme is designed for first-home buyers and is exempt from the LVR rules. The Welcome Home Loan scheme is not available from all banks so you are best to seek the advice of a mortgage broker who can advise you on which banks have this option and will know about the latest rule changes too especially relevant with apartment lending.
Bridging loans – short-term bridging loans where an owner occupier is purchasing a new property to live in before the sale of their current residence are exempt from the LVR rules.
Refinancing – refinancing of existing residential mortgage loans (switching banks) is exempt from high LVR restrictions, as long as the loan balance does not increase. This rule only applies when you change from one bank to another – not when refinancing from a non-bank lender to a bank.
If in doubt about any of the LVR rules or exemptions you would be advised to speak to a mortgage broker.