RBNZ may apply income rule to rental investors

The Reserve Bank of New Zealand has signalled it is reconsidering plans to require banks to hold more capital against loans to rental property investors with more than five properties.

Instead, it is looking at requiring banks to categorise borrowers as commercial borrowers for the purposes of capital adequacy calculations by looking at their rental income relative to their total income, rather than their number of properties.

Last week the bank delayed plans to introduce the 'five property rule' from December until the first half of 2015 after banks argued it would be too hard to administer, given investors often spread their loans and properties across several banks and legal entities.

Speaking at a Parliamentary hearing following Wednesday's release of the bank's Financial Stability Report, RBNZ deputy governor Grant Spencer said the bank was looking at an income rule.
 
"It's really about when do you categorise a borrower as a residential investor. And we are saying that may be on the proportion of their total income that's coming from their investment portfolio, as opposed to just a number of houses," Spencer said.

Earlier Spencer told a news conference the bank was watching the rental property investor sector, but that it was not as much of a concern as it was in Australia.

CoreLogic data showed rental property investors were buying just over 40 per cent of properties in New Zealand and were responsible for about 30 per cent of new lending, which contrasted with Australia where investors were behind 43 per cent of lending.

"It's something we watch and it's an important segment of the market, but we're not seeing the same thing here that they're seeing in Australia right now," Spencer said.

"In Australia a lot of new lending is to the investor part of the market and they're dominating the Australian market at present and I don't think that's the case here," he said.

However, RBNZ governor Graeme Wheeler said in the Parliamentary hearing that the bank was considering measures to discourage heavy borrowing by rental investors.

Wheeler was asked if the banks high LVR speed limit had wiped out first home buyers, clearing the market for rental investors to buy more property. He pointed to Core Logic figures showing only a slight fall in first home buyers to 17 per cent of property sales from a long term average of 19 per cent.

"The issue is also around people who invest in buying multiple houses, and we have been thinking quite deeply about whether we need to introduce measures to discourage some of those practices," Wheeler said, referring to the bank's consideration of tougher capital adequacy rules.