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Reserve Bank comes up with new definition for property investors

Property investors are the target of a new Reserve Bank lending restriction, but the bank says it’s not a macro-prudential tool.

Thursday, March 5th 2015, 3:01PM 6 Comments

The central bank says it is consulting on “a new asset class treatment for mortgage loans to residential property investors within its capital adequacy requirements.”

It plans to amend existing rules by requiring all locally incorporated banks to include residential property investment mortgage loans in a specific asset sub-class, and hold appropriate regulatory capital for those loans.

While it doesn’t talk about the impact on investors of the proposed new rule it is likely to mean interest rates for investors will rise above those of standard residential, owner-occupied homes.

Previously the Reserve Bank argued property investors were those with five or more investments. However, the trading banks opposed this definition.

Now the bank is now consulting on three possible alternative ways to define loans to residential property investors:

  • if the mortgaged property is not owner-occupied; or
  • if servicing of the mortgage loan is primarily reliant on rental income; or
  • if servicing of the mortgage loan is at all reliant on rental income.

“International evidence suggests that default rates and loss rates experienced during sharp housing market downturns tend to be higher for residential property investment loans than for loans to owner occupiers,” Reserve Bank Head of Prudential Supervision Toby Fiennes said in a statement.

“The proposal would bring the Reserve Bank’s framework more into line with the international Basel standards for bank capital. The proposed rule amendment is designed to ensure that banks hold adequate capital for the risks that they face from investment property lending.”

Tags: Mortgage Rates property investment RBNZ

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Comments from our readers

On 5 March 2015 at 3:18 pm kerry61 said:
Increase in interest rates = increase in rent for tenants
On 5 March 2015 at 7:08 pm Aardvark said:
I cannot understand this current regime. The government want to divest itself of public housing! Who is going to purchase it? The private investor. But the Reserve Bank is now trying to put up hurdles for us. This is a Catch 22 situation. The government needs to make up its mind on what it wants the public to do. Of course, the government will not face and interest increase if it cannot sell its housing assets.
On 5 March 2015 at 8:39 pm jpaynter said:
And what is the evidence in NZ that the defaults are higher for investors? I have been an investor for close to 30 years and have not defaulted on a payment let alone a loan in that time. I now have very little debt (probably less than 2% of my equity) and this one brush sweeps all approach wants to treat me as if I am high risk. Ironically I have three projects on the go 1) to buy a very small cheap cashflow positive mixed commercial and residential property 2) to move a house onto land to create a new rental property and 3) to upgrade my home and long term to potentially turn it into a home and income as would be allowed in the zoning under the Unitary Plan (in the short term to accommodate family members). As far as I can see, all these three are desirable outcomes but now the policy would 1) discourage them and 2) make the economics of the projects harder to justify. So this policy has the opposite affect to that desired and typical of Government meddling has a poor outcome. Incidentally the government is trying to sell state housing (it does not want to be in the landlord business; now it wants to discourage others from being in that business too). There seems to be a lack of coordination in the government policy here.
On 5 March 2015 at 10:57 pm JLS said:
Eureka. A perfect albeit cowardly solution to appease the baying of the blind green eyed monsters and punish the greedy evil investor, with someone else to blame for it, until it pushes rents up or reduces the private rental pool- cue next fabricated and baseless crisis and more cries for intervention and control. And so the law of unintended consequences continues and compounds.
On 6 March 2015 at 12:15 pm Broker said:
Well how about property investors and non-property investors work together to tackle the asset bubble and lobby the Government for a tax on foreign ownership then and restrictions on immigration into Auckland?

Oh no wait that would decrease the value and rent of your rental properties? Catch 22 ah? Just make hay while the sun shines and pick up the pieces when it all collapses then? Can't blame the Reserve Bank for looking for tools to slow the bubble...
On 7 March 2015 at 9:41 am JLS said:

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 5.35 4.49 5.25 5.55
ANZ 5.54 5.15 5.85 6.15
ANZ Blueprint to Build 2.78 - - -
ANZ Special - 4.55 5.25 5.55
ASB Bank 5.35 4.49 5.25 5.55
Avanti Finance 5.45 - - -
Basecorp Finance 6.45 - - -
Bluestone 5.29 7.49 7.59 -
BNZ - Classic - 4.55 5.25 5.45
BNZ - Mortgage One 5.55 - - -
BNZ - Rapid Repay 5.55 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.55 5.35 5.94 5.99
BNZ - TotalMoney 5.55 - - -
CFML Loans ▲6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.70 5.20 -
Heartland Bank - Online 4.00 3.85 4.70 4.84
Heretaunga Building Society 5.95 4.80 5.50 -
HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.25 ▲4.29 ▲5.09 ▲5.35
Kainga Ora ▲5.43 ▲4.57 ▲5.58 ▲5.85
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 5.00 5.55 6.19 6.39
Kiwibank - Offset 5.00 - - -
Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
Resimac 4.59 5.60 6.16 6.29
Lender Flt 1yr 2yr 3yr
SBS Bank 5.29 4.69 5.35 5.49
SBS Bank Special - 4.19 4.85 4.99
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - ▲4.19 - -
The Co-operative Bank - Owner Occ 5.45 ▲4.29 5.19 5.45
The Co-operative Bank - Standard 5.45 ▲4.79 5.69 5.95
TSB Bank 5.59 ▼5.14 ▼5.79 6.15
TSB Special 4.79 ▼4.34 ▼4.99 5.35
Unity 5.65 ▲4.80 ▲5.50 -
Wairarapa Building Society 5.24 4.55 5.20 -
Westpac 5.54 5.09 5.79 6.09
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.54 - - -
Westpac Special - 4.49 5.19 5.49
Median 5.45 4.55 5.25 5.52

Last updated: 19 May 2022 10:42am

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