GRA Blogs

Articles by The Professional Trustee Team

LVR consequences

AUTHOR: The Professional Trustee Team

POSTED: 04 August 2016

Many changes are occurring in our financial and real estate landscape.

LOAN TO VALUE RATIOS (LVRs)
As per my last blog on the proposed LVR rules, the LVR applicable across the whole of New Zealand for investors of residential property has now been set at 60% by the RBNZ. As I've said in that blog, I doubt very much this is going to cause property prices to drop dramatically although it may slow the pace of growth a little.

Under the new policy, a 40% deposit is now going to be required. This policy was to be implemented 1 September 2016 but the banks are already applying it. This is causing complications for some people.

In our Professional Trustee Services division we are already finding some clients are experiencing difficulties:

When a client was selling a property, the bank required all of the sale proceeds to be paid to them, as they wanted to ensure the remaining loan they had extended to the client was at no more than 60% of the value of the property they had security over. This caused some stress because the client had thought he'd have enough money from the sale proceeds to buy another property. If this could apply to you, ensure your solicitor obtains in writing the full repayment amount the bank is going to require before settlement so you know what resulting funds (if any) you will have from the sale proceeds.
A client trying to refinance one property to a new lender was told by his existing lender he'd need to repay some of his loan so as to ensure the loan with the existing lender exceeded no more than 60% of the property's value. To avoid this, have your loan broker or solicitor pre-check this scenario.
One client had entered into a long-term agreement for sale and purchase and was about to settle. He was told by the bank that he'd need to put additional funds into the purchase in order to draw down the loan. A nasty surprise. Assume nothing and check in advance to avoid this issue.

It's at times like this where the advice we give to clients becomes so valuable. For years, we've advised clients to use two or more banks in their financial affairs.

Also be aware that further macro prudential tools such as debt-to-income (DTI) may be introduced in the future. People should be thinking already what effect (if any) this will have on them and their affairs.

REAL ESTATE
Auckland Council released the Independent Hearing Panel's Unitary Plan on 27 July 2016. The Panel recommends greater intensification to permit 422,000 additional dwellings to be constructed to cope with existing and future demand. To enable this to occur, rezoning will be implemented along with rule changes to permit more housing to be built on less land. Undoubtedly some owners will be happy with this outcome, as you value land for its highest and best use. Consequently, property values are likely to increase in such cases. Of course to ensure you capitalise on this, you need to first identify where opportunities exist for intensification and secondly, you need to understand (prior to purchase) the financial aspects of the transaction. GRA Property School provides this knowledge.

If you are having any difficulties or need advice on the above, please contact us and we'll try to assist.

Request a Meeting

The Professional Trustee Team

09 522-7955

[email protected]

© Gilligan Rowe & Associates LP

Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.

Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

Comments

Testimonials

This letter is to express my appreciation for the assistance and encouragement of both Anthony Lipscombe and particularly John Heaslip over the last financial year. The period since activating my trading trust has been one of considerable stress, as well as personal development, as I embarked on this as a relative business neophyte with virtually no awareness of the contemporary requirements of running a business, particularly the financial records aspect. During much of this period I have therefore felt considerable out of my depth. However I have been lucky enough to have had the benefit of the advice and support of John Heaslip in rationalizing what was a fairly chaotic set of records of the first year property trading. I am able to say that John in particular, has been unstinting in his attention to my needs and has done so in a manner which has never alluded to my extremely rudimentary grasp of managing a business, or even of being unable to set out a spread sheet properly. The result of the above guidance is that now, although my trading trust would still not be able to operate without the advice of GRA, I do least feel a sense of satisfaction that I have got to my present point without major disaster and that my property trust does now have some kind of firmer basis for any future activities - Name withheld by request

Seminars and workshops for property investors, business owners and anyone seeking to create and protect their wealth.

View all our upcoming events

Learn More

Investing in residential property?

Put this at the top of your reading list.

If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.

Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.