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What do LVR and Second-tier lending mean?

The Reserve Bank of New Zealand has put restrictions on banks’ lending to first home buyers who have less than a 20% deposit of the value of the home. Since the 1st October 2013 banks have been more limited in the amount of 90% mortgages they can loan.

LVR stands for Loan to Value Ratio. It is a percentage. The percentage signifies the amount that a bank is prepared to give as a mortgage on a property in accordance to the amount of deposit that the buyer has, for the value of the house. Since Oct 1st last year, for instance, most first home buyers wanting to purchase a $400,000 property need to provide a 20% deposit = $80,000.

On the Bank of New Zealand (BNZ) website they state:

“The Reserve Bank is concerned that the housing market poses a growing risk to New Zealand’s financial stability. The Reserve Bank believes that these new restrictions will support the stability of the housing market”

While this rule is in place the banks are limited as to how many 90% mortgages they can process. They are allowed to give out mortgages to buyers with only 10% deposit, but they are much more limited to how many, so they are selective.

Now that banks (who are First-tier lenders) are limited in their lending, Second-tier lenders are making their presence felt in the market.  These companies are now offering loans to help buyers increase their deposit, in order to be able to secure a mortgage.  In the months since the 1st October 2013, there has been a considerable increase in the amount of personal loans taken out to put towards a home deposit.

The Ministry of Consumer Affairs considers Building Societies, Credit Unions and The Co-Operative Bank (PSIS) to be second-tier lenders, and pawn brokers, mobile menders and most finance companies to be third-tier.

If you do decide on a loan from a third-tier lender then make sure that you read the fine print regarding the interest rate, high-interest rate loans can get up to 15% and even small shifts can have a large impact on repayments, and unsecured loans are to be avoided.

At Bestagent our service is to find you the best local agents to sell your home, and our service is free. If you or someone you know is looking at selling, complete our enquiry form or application form on our website and we’ll be in touch.

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