Property investors maybe subject to new income rule

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Property investors with five or more rentals can, temporarily, breath a sigh of relief that their interest rates aren’t about to rise soon.

Friday, November 14th 2014, 9:01AM 1 Comment

The Reserve Bank has been looking at introducing new capital requirements which would essentially make a new asset class and mean banks had to have more capital for lending to what it considers professional property investors.

It has been consulting with banks on the new requirements, but has kept rolling back the start date.

Reserve Bank deputy governor Grant Spencer, confirmed, when releasing the latest Financial Stability Report, that work is still continuing on this proposal.

He said there had been "initial consultations" with the banks but there was a difference of views and treatment of residential property investors.

He said the central bank was trying to find the "most sensible" option and it maybe something different than what was earlier envisaged.

"We're not so sure that's the appropriate rule to adopt, it maybe an income rule," he said.

It appears the banks have been putting up strong arguments against this proposed change. Despite many requests banks haven’t been willing to, publicly, discuss what the changes will mean for property investors.

While it is expected that they would become commercial customers and be subject to higher interest rates and tougher equity requirements, no one has been willing to provide specific details.

It is a significant issue for investors as recent surveys have shown that landlords have been increasing the size of their portfolios. Also surveys, including the NZ Property Investor Magazine’s soon-to-be published lending survey, shows that if new requirements were brought it investors would be less likely to buy more property.

Part of the argument for a new set of rules, is that there is more risk involved in this sort of lending, but research shows that generally the equity levels within these bigger investment portfolios are prudent.

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