This morning ANZ announced that, effective immediately, the maximum amount they would lend on an investment property is 60 percent, down from 70 percent (and 80 percent a couple of weeks ago).
The answer to the question, "Will changing the loan to value ratio requirements for investors cool the property market?” has now changed from “probably not” to a strong “maybe”.
Investors typically shop in the same price bracket as first home buyers for a number of reasons: buying at the cheaper end of the market means they can get a higher yield - ie make a better profit off the rental income - and get more for their money - ie more properties and a more diversified portfolio.
A typical first home buyer property in Auckland is around $800,000 right now. Before the announcement, first home buyers with ANZ could, in theory, purchase using an $80,000 deposit. Investors would have needed a $160,000 deposit - difficult but not unachievable. Now they'd need $320,000 in cash or in equity. Given indications that the bank’s mortgage approval ratio is around three investors to every one first home buyer, it seems likely that the move over the past month from 80 percent to 60 percent LVR is going to affect this ratio and therefore the market.
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It’s going to take time to see the effects of this change and first home buyers will need to be patient. Investors with existing pre-approvals can still purchase under the old LVR rules and will probably be hunting a lot more actively. When their pre-approval renews, they’re going to have to meet the new LVR criteria so the next three months will still see investors active in the market.
At the time of writing, the other major banks haven’t indicated their intention to alter the LVR rules from 70 percent to 60 percent but it wouldn’t surprise me in the least if they followed suit. Nevertheless, ANZ have the biggest slice of the mortgage pie so just changing their policy will still have an effect on the market.
It should be noted that new-build constructions are exempt from the LVR restrictions at this point. To be a new-build, the property is usually no older than six months after its Code of Compliance Certificate was issued and must be bought directly from the developer. This returns us to the pre-Covid days of encouraging new stock to be put onto the market.
For first home buyers this announcement is likely to be good news, removing competition from the market. Investors will need to re-run their calculations, checking they have enough equity or cash, or potentially investigating building rather than purchasing an existing house.
- Rupert Gough is the founder and CEO of Mortgage Lab and author of The Successful First Home Buyer.
