New Zealanders taking on mortgages for investment properties could soon find themselves either having to pay higher interest rates, or finding it harder to get a loan, if a proposal by the Reserve Bank of New Zealand goes ahead.
The central bank announced yesterday that it is once again consulting on a new asset class treatment for mortgages to residential property investors. It has called for submissions on how to best define a property investment loan, in order to differentiate these loans from lending to owner-occupiers.
The aim is to improve financial stability across the banking system.
RBNZ's head of prudential supervision, Toby Fiennes, said in a media release that "international evidence suggests that default rates and loss rates experienced during sharp housing market downturns tend to be higher for residential property investment loans than for loans to owner occupiers."
Based on previous submissions, the RBNZ put forward for consultation three ways to define loans to residential property investors:
- if the mortgaged property is not owner-occupied; or
- if servicing of the mortgage loan is primarily reliant on rental income; or
- if servicing of the mortgage loan is at all reliant on rental income.
Once the Bank has settled on a definition, it proposes to amend existing rules, requiring all locally incorporated banks to hold higher levels of capital against residential property investment loans.
The likely consequences of such a move are for banks to charge higher interest rates on loans on property investment, or to lend less of their book to property investors.
Another impact of the change could be to provide some relief to first-home buyers, hit by low deposit loan restrictions, as it may make lending to owner occupiers relatively more attractive.
Submissions on the proposal close on 7 April 2015.