We are still more than three weeks away from the next Reserve Bank (RBNZ) Monetary Policy review on February 23.
Financial markets are paring back their assumptions of the rate rise expected then, from 75 basis points, which was assumed in early January, to 50 bps now.
That would take the Official Cash Rate to 4.75% from 4.25%, if that is in fact how the RBNZ sees it in three weeks.
However, NZ's largest bank, and second largest business bank, is pushing ahead with an 'early' rate rise for its business customers, raising its key lending base rates by 40 bps Monday.
It has advised these changes.
Business Bank Indicator Rate:
| Old rate | New rate | Change |
| % | % | bps |
| 12.25 | 12.65 | +40 |
Agri Current Account:
| Old rate | New rate | Change |
| % | % | bps |
| 10.45 | 10.85 | +40 |
Business Overdraft:
| Old rate | New rate | Change |
| % | % | bps |
| 14.25 | 14.65 | +40 |
If you are a homeowner, you will recognise you are getting a very much better deal than these rates. But you will also need to understand that these are base rates. The bank will add a risk margin on top of these base rates.
And in addition, very few business borrowers will get an equivalent loan-to-value ratio of anything close to 80%. For businesses, it is likely these levels will max out at 66% and mostly be at 50%.
21 Comments
12.65% for business borrowing? A business - isn't that what the Property Investment Sector calls itself when it cries for business rules to be applied across the board, and have interest cost deductibility etc restored?
Looks easy to me. Restore Interest Deductibility and apply the Business Interest rate of 12.65% to all borrowings that are not for a primary place of residence. "But that will push up rents!" will be the response. A tenant can only pay what they can pay, then they move and leave the place empty. A couple of months of $0 income searching for a replacement tenant at 12.65% should be a sobering enough thought to temper rent rises.
Charge them GST too, there is a lot of moaning about how they "provide a service".
Yes and tax everyone on realised profits. No accounting cheat sheets.
Well yeah they call themselves a business for tax purposes, but IRD actually defines them as an individual so should never have business related tax mechanisms. They also call themselves "mom and pop" if the tenant wants to hang a picture/get a pet, or if they need to take the heat off the social harm they cause.
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Individual
- This includes individual customers receiving income from business (eg, rental property, shares) but not registered for GST or PAYE.
Am I an idiot for thinking that this would be the simplest change to make to "fix" the impact of property speculators on the market?
Legislate that all borrowing for the purchase of investment property is effectively a business, so you have to pay business rates.
As it stands, there's little wonder that buying up property is more appealing than actually starting a business.
You're not in finance I take it BW. The rate of 12.65% is unsecured, comparable to a credit card. Small businesses that use residential property as collateral will borrow at mortgage like rates. Those that secure with hard assets like yellow machinery will be somewhere in the middle.
Nice rant though.
Interesting. What size of unsecured loans are banks generally willing to make to businesses?
That would be a big fat zero in my experience. When I started out they wouldn't even give me a business credit card.
That's weird. Last time I went for a business loan it was still required to be secured - either against property or TD.
Secured over the general assets of the business. If anyone is paying 12.65% and using their house or term deposits as collateral, then they need a financial advisor asap.
It is ridiculous. Surely there is room for community based banks that support local business rather than actively bring them to their knees.
As the above commenter mentioned, these should be the rates for all business, including the rental one.
The rates reflect the risk. Bond rates are much lower.
Ayup. Lending for homes is lower risk, because you have the home as collateral.
Business lending is cheaper if the business owns solid recoverable assets. Lending against turnover or inventory is a risky proposition.
I've got 2.4m in unencumbered stock, still struggle to get reasonable rates.
Cost or retail and how quickly/easily could someone liquidate the whole 2.4 (i.e how long would it take them to sell that through and what would the liquidation process cost)?
I don't know what it is but unless it's something like cars you'd be struggling to have someone value the stock at 10-20 cents in the dollar for lending purposes.
Cost. The business financials are stellar, but I dont own a house, this is the biggest issue with this country, everything is wrapped around property.
New Zealand is not really a country where first generation business owners get any breaks. Particularly if you have started from scratch with no family financial backing. Owning a house and all business assets and premises is a long road for most traditional business owners.
Banking in NZ is a monopoly.
Don't forget business rates for insurance, ACC & Council Rates too, and liability for injury that is inflicted on the property.
Banks supporting economic development in NZ - Yeah right!
Banks looking to be banking on further changes for the worse, and all but cutting off these types of loans. What to they know that we don't...
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