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

Investors 
• 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.

Exemptions
- 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.