Deep deposits: LVR restrictions and investment property
Looking to grow your property portfolio? If you haven’t bought a house lately, you might need to read up on how the latest loan-to-value (LVR) restrictions will affect your next buy.
The government created LVR restrictions when house prices rose in the 2010s, hoping to slow demand by making mortgages harder to access. They limit how a bank is allowed to loan someone compared to the value of the property. In other words, the government decides how big your deposit needs to be.
It’s a tough bar for owner-occupiers, but it’s even higher for investors. Whether you’re hoping to speculate or rent it out, most mortgages for residential investment property will need a 40% deposit.
The banks are still allowed to offer a limited number of unrestricted mortgages with, say, a 20% deposit. But ‘limited’ is the word. You’re competing against a lot of other investors if you want to grab one of these low-deposit loans.
One way to go is to consider buying off a plan. LVR restrictions don’t apply to new builds. For it to count as a new build, you just need to buy it no later than six months after the issue of the Code Compliance Certificate (CCC).
You also won’t be stung for more cash if you’re taking out a loan on an existing investment for remediation or repairs.
IS IT OWNER-OCCUPIED OR NOT?
Just because you have an investment portfolio, will you need a 40% deposit on your secondary home or bach? Well, maybe.
Officially, a house is considered owner-occupied if your name is on the property and you and/or your spouse live there as a ‘principal or secondary residence.’ It’s the same if you own it through a company or trust. So, secondary residences should be subject to the lower LVR restrictions offered to owner-occupiers, with a 20% deposit.
Does that mean you’re prevented from earning rent from your ‘secondary residence?’ Yes and no. You’re okay as long as it’s short stints, for example, renting out your bach for a few weeks every summer. If it’s clearly going to spend 11 months a year on Airbnb, it’s likely going to be treated as an investment property and 40% will be requested.
What if you want to buy a home with a flatmate or boarder to help cover the mortgage? Or Airbnb the guest room? As long as it’s your primary residence, you can do so without restriction and still access an owner-occupier loan condition.
Are you on the fence about investing? Should you wait for restrictions to ease before you pour cash into your next rental? While it’s true that the government removed LVR restrictions in 2020, that was a temporary measure to help lenders hit by the pandemic. They never intended for it to be a long term thing.
The government’s interest in controlling the housing market with measures like this remains strong, and in March 2021, LVR restrictions were back. It’s likely they’re here to stay for the foreseeable future.
Got questions? Chat to one of our friendly Financial Advisors. We’re here to help.