Mortgage business calls for LVR clarification

Mortgage Express wants clarification on new loan to value ratio rules. Photo/Dean Purcell.

A mortgage business has called for clarification on new Reserve Bank lending restrictions, saying a loophole means people are struggling to get bridging finance.

But another financier says there are no issues and no clarification was needed.

Sarah Johnston, chief executive of Mortgage Express which is the financial advisory arm of Harcourts New Zealand, said the issue was in applying loan to value ratios restrictions were causing issues.

Borrowers are being shut out of the intensely competitive property market, she said.

"Mortgage Express is calling for 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 per cent loan to value ratio requirements," her statement said.

The Reserve Bank is refusing to comment.

But Satish Kamath of Mortgage Mantra in Mt Eden said there were no issues with the new regime.

"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.

The new LVRs come in officially on September 1, although major banks say they are already imposing the restrictions.

Johnston said if a home owner-occupier has bought before they selling their existing home, technically the second property makes them an investor and the new investor LVR ratio requiring a 40 per cent 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," she said.

"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."

Bruce Patten on Loan Market, said he had not seen any issues with bridging finance.

"But it's early days yet," he said.

The new LVRs coming in on September 1 had, however, created issues for investors, he said.

"We've identified a potential issue if you're a vendor selling an investment or owner occupied property, and retaining other investment properties. The banks could demand the funds be used to reduce debt on the remaining properties, redirecting cash which could otherwise be put into new property," Patten said.