Call to split interest rates

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A two-tier interest rate system, with higher rates for investors, would be a better option than loan-to-value restrictions, one commentator says.

Tuesday, January 7th 2014, 12:00AM 2 Comments

by The Landlord

Olly Newland has been a vocal critic of the LVR rules, which came into effect in October. Banks must lend no more than one in 10 of their new loans to buyers with a deposit of less than 20%.

They are designed to tackle potential financial instability caused by rising house prices.

In November, banks lent less than 6% of their new loans to low-deposit borrowers.

Newland said it was a bad move by the Reserve Bank, and was taking a huge chunk of buyers out of the market.

He said it would be better to introduce a system where investors paid higher interest rates. 

“If you’re going to have something, it makes more sense. If you’re buying an investment property, you can do the numbers. I don’t think they thought [the LVR rules] through.”

More pressure was mounting on the rental property market, he said, as would-be buyers were stuck as tenants for longer.

“The market has to flow smoothly, you can’t take chunks out. If the Government wants affordable houses, the Reserve Bank has taken a third of those buyers away. The first-home buyers of affordable homes don’t have hundreds of thousands of dollars in their pockets.”

At the moment, many banks charge low-deposit borrowers higher rates.

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