Mortgage Express calls for 'LVR loophole' clarification to lenders

by NZ Adviser08 Aug 2016
Mortgage Express has called attention to a ‘LVR loophole’ in the new restrictions, saying it is making it difficult for home owners who are between selling their existing home and buying a new one.  

The mortgage company is calling the Reserve Bank to provide greater clarification to banks and financial lenders around LVR restrictions, saying owner-occupiers are finding they cannot purchase property before selling their existing home without triggering new 40% loan to value ratio requirements.

Mortgage Express NZ CEO Sarah Johnston says banks and other financial institutions are not eager to approve open-ended bridging finance for home owners in the wake of new LVR restrictions, which are aimed at investors.

She says if an owner-occupier buys before having sold their existing home, technically that makes them an investor and the new investor LVR ratio requiring a 40% deposit comes into play.

If investor LVR rules are not applied to the bridging finance, there is a risk that home owner could simply say they had been unable to sell the house and were now keeping it to avoid being classed as an investor.

“It’s very unclear and until that loophole is fixed there are legitimate owner-occupiers who are being shut of out the market because the banks haven’t been given clarification on how to apply the new rules in a ‘buy before selling’ situation.”

Harcourts NZ CEO Chris Kennedy says it is vital that the restrictions for home owner/occupiers are clarified for lenders immediately.

 “At the moment the situation around borrowing seems extremely messy and unclear. We’ve always been pretty sceptical that the new LVR ratios for investors would slow down the market as planned. 

 “In an extremely competitive market, homeowners often find themselves trying to buy before they sell to avoid missing out on their dream home. And without clarification around the rules, LVR restrictions appear to be effectively shutting the people out of the market they were designed to help.”

But Satish Kamath of Mt Eden’s Mortgage Mantra told the NZ Herald that there were no issues with the new LVR restrictions. 

"Lenders are in fact being careful with this situation. In an ideal situation, they are asking for evidence of an unconditional sale of an existing property before making an offer on the proposed new purchase," Kamath said.

"I've just managed to secure a conditional approval for my clients. Their situation is they have bought at auction and are now selling their existing property.The property that they have purchased will be the family home. The existing property is their current family home. The lender has given us a conditional approval subject to the unconditional sale and settlement of the current property," he said.

According to the NZ Herald, the Reserve Bank is refusing to comment.

COMMENTS

  • by woodsy 8/08/2016 4:51:03 p.m.

    I think Satish has missed the point, banks wont do open ended bridging....and good luck with that pre-approval which isnt actually worth holding onto....might as well wait for a sale of the existing house and get a standard approval...no ?

  • by Adviser 8/08/2016 5:14:06 p.m.

    The conditional approval has the potential to be very dangerous. If the old property does not sell, then the new finance may not be provided and the deposit may be lost for the new property. Not to mention the additional interest that may fall due and the delay for the vendor on the new property which may invoke similar issues for them on their next one, etc, etc. To avoid this the purchaser may have to accept a lesser value on the property they have to sell, this too puts the whole situation at risk if the value for the old property does not provide enough money to settle the new property. Conditions that extend into unconditional contracts is not something to be treated lightly. The unwitting can and will lose money, and possibly more if they are not careful.

  • by Robbi Zeng 8/08/2016 9:07:09 p.m.

    I am surprised Sarah made this comment. (assuming) She is an experienced lender, in such a market, who would recommend customers to buy before sell? And in fact, everybody, I am not talking about just people who intentionally try to cheat this (so call) loophole, people who are truly upgrading their family home. If banks agree to do open ended bridging just like that, these people technically change their mind after buying the new home and say, opps, we actually don't want to sell our old home now.. as banks don't have legal mechanism to "mortgage sell" their old family home (now becomes investment), RBNZ rules then becomes nothing.

    As a lender, I think to honour the spirit of the RBNZ guideline, banks should not be doing any open ended bridging loans. And we lenders need to highlight all associated risk for different kind of closed bridging loans.

    And to response those who have the thought of "I want to buy this home now even I haven't sold my home. Because this is such a nice home" Please be more realistic, if you buy the "dream home" and you cannot sell your current home at the price that it needs to, at the end of the day, who will be in trouble?

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