Property Management Focus – August
Understanding Debt-to-Income restrictions and Loan-to-Value ratios: A guide for property investors
From 1 July, 2024, significant changes came into effect that impact property investors in New Zealand. The Reserve Bank of New Zealand (RBNZ) introduced Debt-to-Income (DTI) restrictions, while Loan-to-Value Ratio (LVR) restrictions have eased slightly. This guide helps property investors understand the changes and implications.
Stabilising the housing market
To reduce high-risk lending in New Zealand’s banking sector, the Reserve Bank of New Zealand (RBNZ) has implemented DTI restrictions and adjusted LVR restrictions. According to RBNZ Deputy Governor Christian Hawkesby, DTIs and LVRs work together to stabilise the housing market.
“LVRs target the impact of defaults by reducing the amount of potential losses in the event of a housing downturn. While DTIs reduce the probability of default by targeting the ability of borrowers to continue to repay debt. Both act as guardrails reducing the build-up of high-risk lending in the
system.”
Debt-to-Income and Loan-to-Value explained
DTI ratios measure the amount of debt a borrower can take on relative to their gross income, while LVR restrictions are designed to protect property owners against housing downturns, particularly affecting highly indebted homeowners and investors.
Starting 1 July 2024, the new DTI settings allow banks to make just 20% of new owner-occupier lending to borrowers with a DTI ratio over 6 and 20% of new investor lending to borrowers with a DTI ratio over 7. Financing for new builds, refinancing (without exceeding the original loan value), bridging finance and property remediation are exempt from DTI restrictions.
At the same time, LVR restrictions have eased to allow banks to make 20% of owner-occupier lending to borrowers with an LVR greater than 80% and 5% of investor lending to borrowers with an LVR greater than 70%, up from 65%. The restrictions only apply to new loans and won’t affect existing borrowers unless they seek a ‘top-up’ loan which exceeds the required threshold.
Impact on property investors
Changes to DTI and LVR will affect how property investors approach financing. Investors with high DTI ratios may find t harder to secure financing or find their borrowing capacity reduced under the new DTI measures. A proactive approach to negotiating loan terms and exploring different lenders are essential to finding the most favourable rates and conditions.
Slightly eased LVR rules will allow more low-deposit lending, potentially enabling those investors with less initial capital to enter the market, or offer higher loan amounts with smaller deposits providing an opportunity to buy more expensive properties or expand property portfolios faster.
Understanding and adapting to these new regulations may be challenging, so it pays to work with an expert who understands the intricacies of DTI and LVR regulations and can help you secure the right financing for your investment properties.
Connect with a Mortgage Express adviser and get help navigating changes to DTI and LVR, with expert advice tailored to your financial situation and investment goals.
Source: mortgage-express.co.nz
Changes to the New Zealand Building code and the requirements for smoke alarms
Early in November 2023, changes to the Building Code Acceptable Solutions for Protection from Fire (C/AS1 and C/AS2) came into force. The update outlined the minimum requirements for a fire safety system in new builds or substantially renovated properties from the 1 November 2023. Outlined in the New Zealand Standards NZS 4514:2021 are the requirements for interconnected smoke alarms for houses which will be incorporated into the Building Code.
The standards state that new builds and substantially renovated properties must have an interconnected smoke alarm system installed.
These systems can be either 240v mains powered hard-wired interconnected system or a battery operated wireless interconnected system. The changes have a 12-month transition period ending in November 2024. This allows developers and building companies to incorporate the changes into their plans.
The key points of the changes to acceptable solutions can be found in the Standards New Zealand – NZS 4514:2021 interconnected smoke alarms for houses here.
Below is a summary of the standards:
- All smoke alarms must meet one of the compliance standards such as BS EN 14604, AS3786, UL 217, CAN/ULC S531 or ISO 12239
- Smoke alarms must be photoelectric
- Smoke alarms shall be located in all bedrooms, living spaces, hallways and landings within the building
- In a multi-level household, there shall be at least one smoke alarm on each level
- Smoke alarms shall be located on or near the ceiling
- All smoke alarms must have a hush and test button to temporarily silence the alarm
- Where more than one smoke alarm is needed to meet the requirements of this standard, these alarms shall be interconnected so that when one activates, all smoke alarm devices in the household unit will sound. The interconnection between alarms may be wired or wireless
- Where a kitchen or scullery is separated from the living spaces and hallways by doors that can be closed, an alarm specified by its manufacturer as suitable for a kitchen shall be located in the kitchen. This may be a heat alarm to avoid nuisance activations
- Devices can be 240v mains powered or powered by a long-life 10 year, nonremovable/sealed battery.
In Queensland, it is legislated that smoke alarms in all rental properties must be interconnected, so all smoke alarms in the dwelling activate together. Although there is no official advice on whether this would become law in New Zealand, Harcourts property managers are aware of the requirements for new builds and renovated properties. We are connected to our Harcourts property managers in Australia, as the legislation there is often an indicator of what the future requirements may be here in NZ.
For more information please refer to Standards New Zealand – NZS 4514:2021 interconnected smoke alarms for houses here.
Harcourts Holmwood Property Management triumphs with top honours at industry awards
Harcourts New Zealand would like to congratulate Harcourts Holmwood Property Management
in Christchurch for being honoured with the title of Residential Property Management Office of the Year – Large.
This prestigious award recognises the exceptional performance and outstanding service delivered by the Harcourts Holmwood team and has been very well received by the team given that they were finalists in this same category last year. Their dedication to excellence in managing a substantial portfolio of residential properties has set a benchmark in the industry and this achievement reflects not only the hard work and commitment of every team member but also their ability to consistently exceed expectations and deliver unparalleled client satisfaction.
Their success showcases the strength and excellence of our network and reinforces our collective commitment to providing exceptional service in the property management sector.
