The new loan-to-value ratio restrictions that are going to be officially implemented by the Reserve Bank of New Zealand (RBNZ) may have thrown a spanner in the works of your investment goals. As of 1 September this year, you will no longer be able to borrow more than 60 per cent of the value of a property if you are intending to use it as an investment property.
Some banks have already implemented these rules preemptively, but there are still a few strategies that you as an investor can use to continue or start building your portfolio, building wealth and working towards a comfortable retirement through residential property investment.
Firstly, there are the exemptions that the Reserve Bank itself has highlighted: constructing new homes. The LVR restrictions are partly intended to slow the value growth that Auckland and its surrounding areas has seen, which has come about at least partly through lack of supply.
With that in mind, it would be daft to restrict the construction of new homes that would stimulate supply. As such, the RBNZ does not apply LVR restrictions to loans that are going to go towards building new dwellings. You can use this to your advantage, potentially using some of the new land freed up by the proposed Auckland Unitary Plan to literally build wealth from the ground up.
Combine that with the depreciation schedule that you can apply to a fresh build, and it might be time to consider building homes rather than buying them.
Beyond the bank
The new millennium has brought with it a whole heap of interesting financial technologies and services.
Secondly, there is the fact that banks are not the only horses in town, so to speak. There is more than one way to achieve lending for residential property investment, and non-bank lenders are not exactly uncommon.
There are a few different offerings in this regard. The new millennium has brought with it a whole heap of interesting financial technologies and services; perhaps most notably peer-to-peer lending. This particular system allows borrowers to get finance directly from investors, rather than going through the banking middle man. While this is usually suitable for smaller loans, it is also possible to finance your investment this way as well.
On a more traditional note, you can always go for the already-established non-bank lenders. Some of these institutions may be able to provide you with the financing you need to continue or start your property investment portfolio and avoid the LVR restrictions, but ensure you speak to a financial adviser before committing to any particular one.
It's integral you speak to a financial adviser to ensure you're ticking all the boxes.
Finally, there is an additional option if you have already bought your own home. This is a little bit more of a roundabout way than simply avoiding bank lending, but it is a potential method nonetheless.
When going to a bank with a credit request, they will still take the equity in your family home into account when calculating overall LVR. They can take this all the way up to 80 per cent in their equations, while still staying within the rules and restrictions.
This is, as discussed, slightly more complex – it's integral you speak to a financial adviser to ensure you're ticking all the boxes. The new restrictions can be a hurdle, but that doesn't mean they can't be overcome with some lateral thinking and the right advice. You can get the former with some creativity, and the latter from us here at Goodlife Financial Advice.
Here's to your financial independence!
Authorised Financial Adviser / Investment Property Expert
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