Reserve Bank Announces Property Investor Restrictions

Posted by Dynon on May 14, 2015

In its most recent six-monthly Financial Stability Report, published this month, the Reserve Bank has targeted Auckland property investors with a raft of new restrictions.

"We are proposing these adjustments to the LVR policy to more directly target investor activity in the Auckland region, where house prices relative to incomes and rent are more elevated than elsewhere in New Zealand," the bank’s governor Graeme Wheeler said in a statement. A number of commentators, however, have been quick to observe that the changes are likely to have little effect and will not solve the underlying issue of housing under-supply.

Following recent consultation, the Reserve is establishing a new asset class for bank loans to residential property investors. These loans will attract a higher risk weighting than for owner-occupier mortgages, requiring more capital to be held against them. “The Bank is also proposing some changes to its policy on high loan-to-value ratio (LVR) lending to recognise the financial stability risks arising from housing market conditions in Auckland”, stated its report.

RBNZ.jpgThe changes are proposed to be introduced from 1 October 2015, and will involve a new restriction on loans to property investors in the Auckland region with an LVR of greater than 70 percent. Borrowers will now need a deposit of at least 30 per cent.

“For all residential lending outside the Auckland region,” stated the Report, “the Bank is proposing to increase the existing speed limit for loans with an LVR of greater than 80 percent from 10 to 15 percent, to recognise relatively subdued housing market conditions outside Auckland.”

In an earlier article on the New Zealand Property Investors Federation website, Andrew King, commented that an increase in the amount of capital that commercial banks have to hold when lending on rental properties “will increase the banks costs and potentially increase mortgage costs for rental property owners.” This will, he argues, ultimately result in a further decrease in the number of properties available for rent.

Concluding his piece, King writes “Rental property owners frequently appear to be the first choice for having a stick taken to them, but the justification doesn't add up and forgets that tenants will also be affected.”

The Reserve will issue a consultation paper in late May to outline these proposals in further detail and seek feedback. No doubt they will be inundated.