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Thinking of buying a house? New rules just made it harder

Property investors will need a 40 per cent deposit under tough new restrictions. Restrictions to lending limits on residential properties are also being extended nationwide. The new rules are being urgently introduced in an attempt to put a lid on New Zealand's spiralling property prices.

Reserve Bank Governor Graeme Wheeler has outlined the new rules, and told banks they will be expected to act immediately. The new loan-to-value ratios (LVRs) would take effect on September 1, but the Reserve Bank wants banks to "observe the spirit of the new restrictions" in the lead-up to the new policy.

All the major banks (Bank of New Zealand, ASB Bank, ANZ Bank New Zealand, Westpac and Kiwibank) said they were supportive of the move and have since acted early to introduce restrictions on lending to property investors as part of the Reserve Bank's bid to slow the heated housing market.

New rules - to begin September 1

• Restrictions for investor lending extended from nationwide from Auckland only
• Banks will be forced to require a 40 per cent deposit - up from 30 per cent - for at least 95 per cent of the loans they make in this area.

Home buyers
• Restrictions for owner-occupier lending extended from Auckland to nationwide.
• Required deposit level remains at 20 per cent for at least 90 per cent of bank lending.

- The exemption allowed under the current LVR policy will continue to operate, including for construction lending and major non-routine repairs of dwellings

The Reserve Bank said to "simplify" the LVR policy, it has proposed removing the distinction between lending in Auckland and the rest of the country. Last month, the Reserve Bank left the official cash rate at 2.25 per cent, but Wheeler warned investors could soon be targeted by new LVR rules. The Reserve Bank introduced LVRs of 20 per cent in 2013 to rein in the housing market, and last year it raised the limits to 30 per cent for investors in Auckland. It will consult on the changes until August 10.

The announcement comes after Prime Minister John Key expressed frustration about the Reserve Bank's response to rising house prices, saying that it should not need any more time to investigate stricter rules for property investors and should "just get on with it". Reserve Bank deputy governor Grant Spencer on July 7 said that the bank was considering new LVR restrictions, but would not introduce them before the end of the year.

Do you currently have an existing loan application? See how your bank will treat the new rules application date.

Kiwibank has "communicated the new restrictions to staff and will not accept applications that are not compliant with the proposed new speed limits". Kiwibank said it will honour existing commitments made to customers and continue to "prioritise first home buyers and owner-occupiers as we have in the past."

ASB said existing approvals and pre-approvals above the new 60 percent loan to value ratio would be honoured until their documented expiry date.

BNZ said "all investor home lending applications from today will require a 40 percent deposit".

ANZ, the country's biggest lender, said it would extend the maximum loan to value ratio of 60 percent for property investors across New Zealand, after previously only requiring a 30 percent deposit in Auckland. It's also extended the 85 percent LVR in Auckland owner-occupied homes across New Zealand. The bank said it intends honouring all existing pre-approvals but any renewals will be subject to the new policy.


Law changes for Residential Landlords

Law changes to the Residential Tenancies Act are now in force (effective from 1 July 2016). Changes to the Residential Tenancy Act (RTA) aim to reduce fire-related injuries and deaths and to make homes warmer, drier and safer for the million New Zealanders who live in rental accommodation. Here is the Key information about some of the new changes direct from Ministry of Business, Innovation and Employment.

Smoke Alarms
From 1 July landlords will need to have working smoke alarms installed in all their residential rental homes. 

- There must be a minimum of one working smoke alarm within 3 metres of each bedroom door, and in a self-contained caravan, sleep out or similar there must be a minimum of one working smoke alarm. 
- Long life photoelectric smoke alarms are now required where there are no existing alarms. When existing smoke alarms are replaced, the replacements must be long life photoelectric smoke alarms. Hardwired smoke alarms are also permitted.
- The landlord is responsible for making sure smoke alarms are in working order at the beginning of every new tenancy.
- Tenants will be responsible for replacing worn-out batteries in the smoke alarms and informing their landlord of any defects.

It is an unlawful act for tenants to cause or permit any interference with, or to render inoperative, any means of escape from fire – which includes smoke alarms. The maximum fine for this offence is $3,000. 

All residential rental homes in New Zealand will be required to have insulation to keep a home warm in winter and cool in summer. Social housing (where tenants pay an income related rent) must be insulated by 1 July 2016 and all other rental homes by July 2019. 

Landlords are required to provide a statement on the tenancy agreement for any new tenancy commencing 1 July 2016 about the location, type and condition of insulation in the rental home. 

Installing conductive foil insulation in residential and rental homes is now banned.

Insurance cover - information for landlords
It is important that landlords have some form of insurance cover for their rental properties and that they check with their insurer to be clear about landlord and tenant obligations regarding smoke alarms and fires. Landlords should be aware that:
- Where tenants cause a fire through carelessness (negligence) which damages or destroys the property, they may be entitled to immunity from liability if the landlord has insurance coverage.
- Tenants' immunity exists unless the fire is caused intentionally by them or their guests, by a criminal act on the property (such as manufacturing methamphetamine), or if the tenants have caused the landlord's claim to insurance coverage to be irrecoverable.

Tenancy abandonment process
The new law introduces an expedited process for a landlord to regain possession of their rental property when the property has been abandoned.

The expedited process for regaining possession will enable a Tenancy Adjudicator to decide the case based on evidence landlords have provided in their expedited abandonment application. Landlords will not need to be present when the Adjudicator considers the evidence under this new process.

The Tenancy Tribunal Application Online form has been updated to include the new expedited abandonment process. 

Enhanced enforcement function
The Chief Executive of the Ministry of Business, Innovation and Employment will have greater enforcement powers, including investigating and taking proceedings to the Tribunal on behalf of the tenant, even without the tenant's consent.

Retaliatory notice
It is now an unlawful act for a landlord to end a tenancy in retaliation for a tenant exercising a right under the tenancy agreement, the relevant law, or by making a complaint relating to the tenancy. This is called a 'retaliatory notice' under the Residential Tenancies Act. Tenants who take direct action against landlords will now be able to challenge an alleged retaliatory notice up to 28 working days after it has been issued.

Dairy prices down, from farm gate to grocery store (AStatistics NZ Media Release)

Global dairy prices have fallen over the last two years, meaning lower payments for farmers, and lower prices for consumers.

Falling prices, rather than lower volumes, have pushed down the value of dairy product exports over the past two years. The value of exported dairy products fell $1.5 billion between the December 2013 quarter and the March 2016 quarter, down 37 percent.

The lower export value was driven largely by price, as the volumes of milk products exported have remained relatively steady.

The percentage of New Zealand's annual export value that comes from dairy has generally increased over the last decade. However, in the most recent year from 2014 to 2015, it dropped from 32 percent to 26 percent of New Zealand's goods exported. The main contribution to this fall in value was milk and cream, which includes milk powder. Butter also fell, while cheese rose 5 percent.

"Like humans, cows (cattle) form close friendships and
choose to spend much of their time with 2-4 preferred individuals.
They also hold grudges for years and may dislike particular individuals."

Fonterra Farm-Gate Milk Price

Most of New Zealand's dairy product exports are sold by Fonterra. Their forecast farm-gate milk price for the 2016/17 dairy season is currently $4.25 – well down from the peak of $8.40, in the 2013/14 season. The farm-gate price is what Fonterra pay to dairy farmers per kilogram of milk solids. According to Dairy NZ, for the average New Zealand dairy farm to break even, the price needs to be $5.25. 

"Cows display emotions and have been shown to produce more milk 
when they are treated better as individuals."

Cattle prices

The prices dairy cattle farmers receive (the output prices) are at a nine-year low. They have fallen by more than half since the recent peak in 2014.

In the March 2016 quarter alone, the dairy cattle farming prices received (outputs) fell 6.0 percent, as measured by the business price index. By comparison the average price paid by households for the cheapest-available 2 litres of blue-top milk, as measured by the food price index, was $3.28 in March 2016. This is compared with the high of $3.71 in November 2014. Dairy export prices rose 5.1 percent in the March 2016 quarter, influenced by milk powder (up 4.2 percent).

"Cattle get excited when they solve problems. When faced with a challenge
of finding out how to open a door to reach food, their heartbeat went up,
their brainwaves showed excitement, and some even jumped into the air."

Global Trends

Globally, the prices of dairy products have been falling in 2016. The global dairy trade (GDT) price index mostly fell in the March 2016 quarter, with some rises through April. The GDT however, represents a small proportion of dairy products exported by New Zealand. For example, the total volume of dairy products exported by New Zealand in the March 2016 month was 223,000 tonnes – the GDT only traded a total of 42,286 tonnes in the same period.

"Cattle have an excellent sense of smell. They can detect odours up to five miles away.
They can also hear both low and high frequency sounds beyond human capability."

Number of Dairy Cattle

With lowered milk-solid payouts due to weak international demand and increasing global supply, the number of dairy cattle decreased in 2015, for the first time since 2005. Agricultural production statistics show there were 6.5 million dairy cattle at 30 June 2015, down 213,000 (3 percent) from the same time in 2014.

"Cows like to sleep close to their families, and sleeping arrangements
 are determined by individuals' rank in the social hierarchy."


IRD Debt Scam

If you get a phone call, email or text from an IRD officer claiming to be Kenneth Mathew telling you that the IRD is going to take legal action against you for unpaid tax, then it is highly likely to be a scam. IRD won't contact you in this manner and the phone number they give you to call back on is unlikely to be the IRDs. 

This scam has been operating in Australia for the last two years and has managed to jump the ditch. The Ministry of Business, Innovation and Employment (MBIE) in NZ is aware of it going around at the moment. From what we are hearing, the scammers seem to know a bit more than they should about their target, so the caller sounds very plausible. 

The smart thing to do is not to give credit card or bank details and not to respond to any emails or texts. If you are on the phone, say that you will follow this up with your Accountant and don't call them back on the number they give you. Call us, we can soon tell you what is and isn't right.

PKF Poutsma Lemon Limited

Alison Lemon, Director

A timely reminder to not make like an ostrich about your student debt. If you're planning to go overseas for less than six months, the way you pay your student loan stays the same. If you're planning to go overseas for more than six months, your repayment obligations change.   If you have concerns how this may affect your travel plans or just want to know what's happening with your student loan, please contact our office today.

Woman arrested at Auckland Airport over unpaid student loan.

A woman trying to board a flight to Australia has been arrested at Auckland Airport allegedly for an unpaid student loan debt. An Inland Revenue spokesperson confirmed the arrest and said it was "used as a last resort", The New Zealand Herald reported. She appeared in Manukau District Court on Wednesday.

Overseas-based borrowers are responsible for 80 per cent of all overdue loan repayments, causing IRD to crack down on defaulters. About 20 people who have defaulted on their repayments are currently under surveillance for possible arrest upon returning to New Zealand. 

In January, Nga Puna, a nephew of the Cook Islands Prime Minister Henry Puna, was the first person arrested under laws introduced in 2014 to tackle an $800 million outstanding student loan problem for Kiwis overseas. Mr Puna studied at Auckland University two decades ago, racking up a loan of $40,000, which expanded to more than $120,000 with interest. Back home now after his arrest, Mr Puna said "because I got arrested people are looking at me differently now". He said he was never dodging his debt and vowed to pay it off.