- Hey, it's Connie from Prosperity Finance.
I hope you're well.
Now you probably heard that ASB and ANZ
has made an announcement
that they will reduce their LVR on
investment property lending from 80% to 70%.
Now with ASB situation, it takes effect immediately.
So they already applied the new rule.
Now with ANZ. still got a time.
'Cause they set the deadline to be the 7th December.
Now when this news came out we got flood of inquiries
because people was really surprised
that the LVR rule changed so dramatically.
So do us.
If you remember back then the 1st May,
Reserve Bank has provided LVR exemption policy.
So that means that you don't really have to
have restriction on LVR
Banks you can lend whatever you like, in terms of LVR.
Now a lot of people confuse that you don't need
a deposit anymore.
That was not the case.
It just means that there's no restriction for the bank
to comply.
But bank do have their own lending rules.
They will never lend on a 100%.
So yeah, that wasn't the case.
But bank, what they did was
they actually loosed the rule on investment property LVR.
So it used to be 30% deposit, now it was only 20%.
Most of the bank has done that except a couple of banks
like Westpac, SBS, Co-operate Bank.
Most of the major banks like ANZ, ASB, BNZ,
Bank of China, even they all start applying 80% LVR rule,
i.e you only need a 20% deposit.
Now we know that the property
is growing in value dramatically post lockdown.
LVR rule exemption, we think, might be returned
sometime before May when doing the review.
But what we didn't expect is this rule come back so quickly
even before end of this year.
So there was no any indication whatsoever
and you have to apply the new rule immediately
or in four weeks time.
So anyway, it's happens.
We're all surprised or shocked, but what can we do about it?
Yes. You still got the time.
Why? There's still other banks.
They are lending on 80% LVR.
What are they?
Firstly, ANZ still lending 80% before 7th December.
And BNZ, even though BNZ have a different
servicing requirement for 80%,
but they can still lend on 80% LVR.
With BNZ
So what that mean is, if you borrow 70%,
they can lend you more,
than if you borrow 80% for your investment.
Even your income is the same,
but they have other servicing restriction apply
when you borrow 80%.
But it's still open for 80%.
Bank of China, for now they are still lending on 80%
even though they don't do pre-approval
due to their capacity limitation.
Now what the live deal mean is
you need to have a signed sell-purchase agreement.
So normally these purchase through by negotiation.
If you want purchase through auction,
unfortunately they can't do it
'cause you need a pre-approval right.
It's unconditional once you win.
Also is very important sector is called primary non-bank.
So they are not banks, but they're also competing
with banks in the home loan space.
Normally they have a slightly different rules from banks.
One of the rule is
they've been lending on 80% for a long time
even for investment property.
Even before the 1st May.
And now they are still applying the same rule.
Now their interest rate is only marginal higher
than the bank's rates.
For example, just put into a context,
the banks might charge you 2.39%, for example.
Now the non-bank probably charge you a 3% or maximum 4%.
So it's really affordable.
Yes, it's higher than the banks,
but if you don't go to them,
you may not have a solution.
You probably miss out on opportunity,
which could bring you much more wealth in the future.
So they have the option there for you.
Now you may wondering, "I don't really know
the impact of the LVR 10% difference."
Now let me give you example.
Now assume this customer has one home
and one rental property.
The home was $1 million and the LVR is 80% at the moment.
It's been like that for a long time.
Now, the security value, what that mean is
the banks happy to lend with that property value
up to a 100K.
Now let's assume the home only had 400K borrowing.
So I use the portion.
So the value of this minus the balance
is called "Unused Equity."
So unused equity is 400K.
Now they also have a rental property worth 900K.
Now under the scenario of 80%,
banks are happy to secure the loan up to 720K.
Now let's say the property already borrowed 600K.
The unsecured part is 120K.
That's simply this number minus 600 equals 120.
Now when the LVR is 80%,
the total unsecured equity in this case is 520k.
Let's say the deposit to buy another rental is only 20%
because the LVR is 80.
So what that mean is
let's assume the customer has enough income
to service the additional 2.6 mil.
Then they can buy a property up to 2.6 mil
or buy two
So it's simply
use the unused equity divide by the deposit requirements,
that gives you the budget.
You don't need to provide any cash deposit,
You can just use the equity.
Now let's look at the scenario of LVR 70%.
Now, under 70%
the security value would be 630K.
Because they no longer comfortable to lend you
more than that
'cause the LVR dropped.
Now, the balance is still 600K.
So the unused use portion is reduced to 30K,
not 120k anymore.
Now, in this case the unused-equity
across the two is only 430K.
And you need 30%.
You have less equity, but you need more deposit.
So what is the budget?
Again, assume that customer has enough income
to service the loan.
Cause we only talk about the LVR,
which is the equity side of thing.
So that equals to 1.43 mil.
So they can only purchase a property up to 1.43 mil.
Now the different between the two is about 1167k.
When the LVR is 80%, they probably
can buy two rental property but now there's only one.
They will miss out one property.
That's how significant it is.
With some customer, lots of rental property,
this figure is even more significant.
So it definitely very important
if you are looking to purchase a property
in the near future.
The equity is so important 'cause you can't
simply save 30% deposit in cash, it's...
You know, no one can, it's very hard.
So equity is so important
for you to build your property portfolio.
Now what action we can take right now?
ANZ and ASB are already, tighten up the LVR rule.
You still can do something because as I mentioned
there's some other banks are still lending at 80%.
So I have a video I recorded around 1st July,
so you can have a look that video,
'cause in that video I talked about
how you can seize the opportunity of 80% LVR.
What action you can take.
So here, I just briefly kind of cover these point again.
Now, if your properties are cross-secured
that means you have more than one property with one bank.
Now I would recommend splitting them now.
Now, take the rental property and borrow up to 80%.
That way you can reserve the equity.
And then let the remaining loan secured by home
And keep them separate.
If you don't keep them separate,
when the LVR do drop to 70%,
the weighted LVR will be reduced.
And also some people, they have
significant increase in equity as a result of 80% LVR.
Now potentially you can look at.
if you can discharge any existing security.
For example, in this case,
let's say clients can borrow up to 1.5 mil, 1.52
and they only have a mil of debt.
So that means they have enough security to secure the loan.
If they have a third property
and also mortgage to the same bank,
then it's not necessary
because the bank has enough security.
So you can "discharge" their property.
Why discharge?
Well it's for better asset protection
because bank has no control over the assets.
And also later you can use the mortgage free property
as equity to borrow from any bank.
As long as the servicing stack up.
You don't have to go to your existing bank.
They may not be able to lend you the maximum.
So do these things.
If you already split the banks,
you have different property with different bank
then I would recommend a review
if your rental property is
secured with a bank who can lend you 80%.
Now if not, think about
refinancing to another bank who can lend you 80%.
However, you might have some costs associated with that.
Such as breaking costs if you are still on fixed-term loan,
and if you get cash back from the current bank
and you still within that cash back
clause periods like three or four years,
you may have to pay back the full cash back
or partial of the cash back you received earlier.
So just bear in mind, that will be the cost,
but the benefit probably outweigh that cost.
So you need to make a judgment on that.
Now, also see if you can top-up the rental property
to 80% and use the top up money to repay the loan
which secured by home.
Because your equity with a home,
it doesn't really change much.
The 80% has been applied for many years.
The rental property LVR however,
this is a probably a last chance
for you to reserve the LVR 80%.
So do this if you already separate your properties
with different banks.
Now, a couple of other tips, action now
because one is, it's just Christmas around corner.
Normally this is a peak season for us, for the banks.
So everyone gets really busy.
So turn around time is very slow.
And also because some banks like ANZ, there was,
they set the new rules start applying from 7th December.
So I expect there will be a flood of application
people the 7th December.
So do it now.
And other bank might have the LVR rule change immediately.
So you never know it can change from any time, from now.
Also, you might want to do a paid valuation.
Now how the banks establish these values.
Now banks use third-party valuation system.
So that valuation system is based on the historical
kind of last few months sales history
with the similar kind of property in your area,
it's sold for X amount.
So they predict your property can be sold
for the similar amounts.
However, the mark is climbing.
The price is increasing.
So if they use historical data,
that means the value that they provide to the bank
may be underestimated,
So what you could do is you tell the bank
or your advisors say,
"Oh, my property is worth 1.1 mil,
but I can approve it.
Can you use that value to provide a conditional offer
and do the valuation to approve that value."
So that way you can potentially get more equity out.
And you don't need to pay anything until it's approved.
So you it's got a return on that value right?
So, probably that's something you can consider
but obviously it costs you money.
Normally is about 0.1% of the property value.
For example, if your property is 1 million
that probably costs you $1,000 to do.
It just a rule of thumb.
The valuer will quote the job
and let you know exactly it's going to cost you.
I think we've covered probably everything
I can think of.
Now in the last couple of days I've been asked most is
how I will be impacted.
Now if you haven't got your pre-approval
then you need to be quick.
'Cause as I mentioned the new rule can apply
from any time from now.
So you need to get in ASAP.
Now if you already have a pre-approval to buy
investment property
your pre-approval is more likely to valid
until it's expiring date.
So try your best to find a suitable property
before it expires.
'cause once it expires, the new rule will apply.
So if the equity is important for rental property purchase
try to do it before the offer expires.
That's all from me today.
I hope you find this information useful.
Now, obviously everyone's situation is different.
If you want to find out exactly what you need to do
in your situation,
please feel free to get in touch with us.
We will make assessment on your own situation
and give you tailored advice.
Thank you so much.
Take care.
Bye for now.