Will new Reserve Bank rules see residential property investors hit with higher mortgage rates than owner-occupiers?
The Reserve Bank has introduced restrictions on banks' residential mortgage lending to Auckland property investors and made rules so loans to property investors cost banks more than loans to owner-occupiers. But no bank has yet introduced carded, or advertised, loan rates that differentiate between investors and owner-occupiers. And nor have they unveiled any specific Auckland investor rates.
The loan-to-value ratio (LVR) restrictions on Auckland property investors took effect on November 1, meaning borrowers generally need a 30% deposit for a mortgage loan secured against Auckland rental property. And the Reserve Bank has also established loans to residential property investors as a new asset class for banks, meaning banks have to hold more capital against loans to investors than they do for loans to owner-occupiers.
Asked whether they have any plans to introduce split rates for investors and owner-occupiers, the major banks are keeping their cards close to their chests, which suggests changes might be in the wings.
Below are the responses received by interest.co.nz from the big five banks.
ANZ, "There have been a number of regulatory changes affecting the residential property investor market recently. We’re currently working through this and assessing options."
ASB, "It's a no comment from us."
BNZ, "No - though it's still early days. We're always reviewing the impacts of new regulations for investors."
Kiwibank, "As always (we) are looking into strategies to best manage the new environment but currently are not looking at pricing levers."
Westpac, "Our rates and offers are constantly under review with the aim to reflect the market and meet customer needs."
In Australia the parents of New Zealand's big four banks have this year lifted interest rates for residential property investors above those for owner-occupiers. This comes after the Australian Prudential Regulation Authority told banks last December that growth in loans to property investors shouldn't exceed 10% of their portfolio, and as regulatory capital requirements are being increased. Westpac, for example, increased fixed rates for residential investment property by up to 30 basis points in August and cut fixed rates for owner-occupiers by up to 30 basis points.
In New Zealand more than a year before the Reserve Bank introduced restrictions on banks' high LVR residential mortgage lending in 2013, banks started offering "special" carded rates for borrowers with deposits or equity of at least 20%.
In its Financial Stability Report last week the Reserve Bank reiterated its estimate that average risk weights for investment property lending will rise by about six percentage points. For ANZ, ASB, BNZ and Westpac, who use the Internal Ratings Based capital approach, an initial risk weight of 30% implies a 20% increase in the minimum capital requirement for investment property loans, the Reserve Bank added.
*This article was originally published in our email for paying subscribers early on Wednesday morning. See here for more details and how to subscribe.
40 Comments
....level the playing field entirely. Joe Blo gets no tax deduction for home associated costs, nor should a PI. Simple. To an extent they have done this with GST (not claimable on rentals), so why not go all the eway with income tax as well? Encourage investment away from housing into production.
Joe Blo doesn't pay tax on some deemed rate of rent for the house he lives in.
I assume that even after taking away a landlord's right to claim expenses you will still expect them to pay tax on the rents?
If not then I am for the law change. If you still expect tax to be paid on rent then dream on.
A genius must have thought of this recipe.
Go ahead and charge more interest to property investors.
Then stir carefully, slowly increasing the heat and in a very short time - bingo!
Stand back an enjoy the view as rents rise even further to meet the added costs.
Brilliant this idea, just brilliant.
But then hey presto some of those renting will gather their hard earned savings, check out some of those overpriced shacks and bingo they are suddenly affordable, as the rentiers rush for the exit door.
Crickey who would have thought of such a thing in this modern world?
BD and yourself may be property guru's, but you don't have to be a property guru to realise that mucking around with the Auckland property market is just going to make things worse.
The Government, Auckland council, and other charitable organizations need to build more houses. Building more houses, provide more land for housing, and assist first home buyers into the market will fix the issue, but we all know it's not going to happen.
In respect to banks raising rates for property investors, I don't think that will happen. Investors with 50% LVR is a safer bet than a home owner with 90% LVR. There is too much competition from other finance companies and banks don't want to risk losing market share. If anything, you will see the extra costs to the bank be averaged out across their loan book.
so the only reason rents don't increase, according to you, is because costs are not so high as they could be?
Well, I am a renter and I can assure you if my landlord could he would charge more.
I guess you as a landlord have committed to make exactly X % "AND NO MORE!". Right..
PS: I support further restrictions to lever for property "investors". If they want to "invest" do it with your own money and not at the expenses of financial stability and savers. Especially considering we have something called OBR.
PS2: Your opinion reminds me of those who think that if "investors" stop "investing" in rental properties we, renters, wouldn't have anywhere where to live (as if the houses evaporated from Earth then)
Prices may flatten but will not drop significantly unless there is an economic shock from within or overseas.
During the 2008 GFC, property prices remained static despite chaos abroad.
95% of property owners don't have to sell so they just hang on.
Death, divorce and de Bank are the only drivers of urgent sales.
no, I'm implying we provide social housing directly or indirectly (subsidies), and therefore should have a say in the quality and quantity of housing to meet the needs of the tenants. The RBNZ could impose an interest rate premium on all landlords and demand the premium be paid to social housing providers to supply more housing.... but, in Auckland, that will mean increased rent, so bigger subsidies.... doesn't fix the issue....
The problem is who pays, or can afford to pay for what can turn into a bottomless pit.
In terms of standards the housing can be set, by the tenant. ie If the tenant wants insulation, double glazing and a heat pump the tenant should specify that while searching for a place to rent. Now that is separate to maintainance.
The tenants will go where they already go now;
- Back to mum and dad (or don't leave mum and dads in the first place)
- More people in each house
- Move away from Auckland
- Live in a garage
It's happening now, as rents rise faster than incomes it will happen more.
I agree with "sharetrader" above.....Banks have to apply a higher cost of Capital to Property investor lending.....no reason why some portion of this should not be passed on to the property owner.
Interest rates would appear to have little or nothing to do with what landlords charge their tenants anyway....I cannot remember any landlord of mine reducing my rent when the interest rates decreased.....
If you derive an income off a property asset you should be treated the same as any other Commercial enterprise....and your interest rates on lending should reflect this and be on Commercial Terms
Surely the value of the home against which the mortgage is registered will count as capital towards the bank's lending? As long as the investor borrower has more than 30% equity then it should not impact on the bank's capital requirements.
I think it will be a brave bank who would charge an investor a higher rate than a home owner where the LVR, amount borrowed and income to loan ratio of the investor are all a lot better than the home owner's.
PI loans are Classificatied in a different category to OO loans and more capital must be held against them so the profit is smaller for the banks, hence why they hiked the rates in aussie and now there is a different rate for each class, PI are .25 higher
http://www.smh.com.au/business/banking-and-finance/interest-rate-gap-be…
Do you know the rates? I assume you are saying PI have a capital rate of say 20% and OO have a rate of 10%.
So lending $1m to a PI the bank will need to have $200k in capital (e.g. cash sitting in the vault).
So lending $1m to a OO the bank will need to have $100k in capital (e.g. cash sitting in the vault).
This is so even if the PI is 50% LVR, and a DTI of 3 and the OO has an LVR of 90% and a DTI 0f 6.
Say it ain't so...
Bottom line - banks are looking at how they can protect their own interests, by not causing the property market to tank, resulting lots of failed mortgages and foreclosures and costs, while also figuring what they can do to increase their margins in this area. they don't care about their customers, the impacts or outcomes, only their profit.
Major commercial banks indeed only care about their profits. And so they should.
They are a business, not a charity, and certainly not an instrument of public policy.
A bank is not your friend - they are a tool be used as required.
Shop around - go offshore if required for the best deals.
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