A buyer with a 10% deposit wants to buy a townhouse directly from the developer two months after its completion. How do the Reserve Bank's LVR restrictions treat this loan?
Correct Answer
A) It is exempt as a newly built home bought from the developer within 6 months.
The Reserve Bank lists construction loans as exempt from LVR restrictions. That covers a borrower constructing a new home or purchasing a newly built home from the developer within 6 months of completion. A townhouse bought from the developer two months after completion falls inside the exemption.
Why This Is the Correct Answer
The purchase is from the developer and within 6 months of completion, which the Reserve Bank treats as an exempt construction loan.
Why the Other Options Are Wrong
Option B: It counts as high-LVR lending because the deposit is below 20% of the price.
Construction loans, including buying a newly built home from the developer within 6 months of completion, are exempt from LVR restrictions.
Option C: It is exempt only if the buyer signed the purchase agreement off the plans before building started.
The exemption covers buying a newly built home from the developer within 6 months of completion; an off-the-plan agreement is not required.
Option D: It is exempt only if the buyer is also using a KΔinga Ora First Home Loan.
First Home Loans are a separate exemption; the new-build exemption applies on its own terms.
Background Knowledge for Finance
Source: https://www.rbnz.govt.nz/regulation-and-supervision/oversight-of-banks/standards-and-requirements-for-banks/macroprudential-policy/loan-to-value-ratio-restrictions
Exam Tip for Finance
For the new-build exemption, check two things: bought from the developer, and within 6 months of completion.
Common Mistakes to Avoid on Finance Questions
- β’Assuming every low-deposit loan counts against the speed limit, even for new builds.
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When assessing a mortgage application, which factor is typically given the highest priority by New Zealand lenders?
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- β What is the maximum amount a first home buyer can withdraw from their KiwiSaver account for a house deposit?
- β What does LVR stand for in New Zealand mortgage lending?
- β What is the key difference between a table mortgage and an interest-only mortgage in terms of monthly payments?
- β A bank checks how much of a borrower's gross income would go on debt repayments. The borrower earns $80,000 a year, already pays $800 a month on other debts, and the new mortgage would cost $2,200 a month. What share of gross income would the repayments take?
- β Sarah earns $80,000 annually and wants to borrow $400,000. What is her debt-to-income ratio?
- β A property is valued at $600,000 and the buyer has a $100,000 deposit. What LVR would this loan represent?
- β Which of the following is NOT typically considered by banks when assessing lending criteria?
- β How long must a KiwiSaver member have been contributing before they can withdraw funds for their first home?
- β Which type of mortgage allows borrowers to make additional payments that can be re-borrowed later?
- β A couple with a combined income of $120,000 wants to buy their first home for $650,000. They have a 15% deposit. What is their LVR?
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