The recent changes to the LVR (Loan to Value Ratio) which came in October 2016 have created some odd and possibly unexpected retrospective effects. One of our clients recently got caught in this net…
A family trust sold a family home as the family were relocating to another area. The trust also owned a rental property (purchased in 2012). The money released from the sale of the family home was sufficient to provide a 20% deposit in the new area.
However the rental property had been purchased with a modest deposit, and only had 27% equity.
So the bank would lend the 80% for the new house – but only on condition the family increased the equity in the rental property to 40%.
This is odd because it would be possible to re-finance the rental property at the old loan to value ratio (27%) but they could not draw down a new loan to buy a new family home without adjusting the rental property loan.
Even more bizarrely, there is nothing to stop the family going to another bank and drawing down a new loan for the family home!
So the ‘rules’ apply if your borrowing sits within one bank, but not if you spread your borrowing between banks.
(Here’s a link to the rules if you want to read more on this.)
Have you experienced any unintended consequences of the new LVR rules that we can share? Do we think that the new rules are having the desired effect of slowing down the over-heated property market? It does appear from real estate data that the increases in house prices is returning to normal, without a dramatic correction.
As always, if you’re in this position and need some advice, give us a call at 0800 755 333.