RBNZ delays rental property mortgage change

After opposition from banks, the Reserve Bank of New Zealand has delayed imposing a macro-prudential tool designed to reduce the risks to the financial system from rental property mortgages.

The central bank, which also regulates New Zealand's banks, again delayed plans to require banks to hold more capital to back mortgages to rental property investors who have more than five properties.

A bank spokesman told Banking Day the rule that was due to be imposed from next month would now be delayed until the first half of 2015 while the Reserve Bank held further talks with banks.

The RBNZ initially proposed in September 2013 that banks would have to classify mortgages for property investors with more than four properties as commercial loans from July 2014. This would have forced banks to put aside more capital to back the loans, which the banks said would be difficult to implement and potentially drive up interest costs for rental property investors.

In December 2013 the RBNZ made various changes to the plan, including changing the threshold for tougher capital requirements to five properties from four. The plan was launched in tandem with the bank's high loan-to-valuation ratio speed limit, which has been criticised for favouring equity-rich rental property investors at the expense of first-home buyers.

On June 13 the Reserve Bank said the classification of rental property loans as commercial property loans under its capital adequacy rules would be delayed from July until December this year.

Banks and others argued in submissions to the regulator that the rules were impractical given many investors had loans with several banks and would be difficult to track or collate information for.

One bank estimated it would take it 18 months to develop the internal modelling to calculate the capital requirements for such loans under the RBNZ's approach, which allows banks to use internal models for risk weighting of assets.

The RBNZ held a workshop with bankers to discuss the proposals in October.

An RBNZ spokesman said on Monday: "Proposed changes to banks' asset class treatment for mortgage loans to residential property investors that was scheduled for December 2014 is now delayed until the first half of 2015."

"The extension to the timeframe is necessary to work through some technical aspects with industry and may include a further round of consultation," he said.