Call to risk-weight investor loans
Banks should be forced to risk-weight investor mortgages and loans on interest-only terms, according to economists from Kiwibank.
Monday, January 25th 2021, 4:51PM 
1 Comment
The economists, led by chief economist Jarrod Kerr, believe action is needed to "rein in" the housing market, following red hot activity fuelled by record-low interest rates.
In their latest note to the market, the team calls for a rethink in how home loans are priced and allocated.
They believe the Reserve Bank should enforce a "reassessment, and bank repricing, of the risk associated with home loans", with weighting adjusted to reflect the higher risk of interest-only terms and loans to investors.
The Kiwibank economists say, "Applying a higher risk-weighting on investor mortgages forces banks to hold more capital against those loans, and ultimately price them differently."
They argue riskier investors should get the highest rates.
"Someone walking into a bank with a 30% deposit, [wanting] to upgrade their home, should receive a lower interest rate than a leveraged investor buying their fifth investment property on interest-only."
While investors are under fire for fuelling the recent housing market boom, the economists admit changes to mortgages "won't fix the housing problem": "Attacking demand is not the answer. Fuelling supply is the answer," they said.
"The Government must step up, in support of the councils, to unlock land, build the infrastructure, and provide long-term plans to tackle our chronic housing shortage."
The bank, like its big four rivals, has revised its forecast for the official cash rate. The economists believe the OCR will no longer drop below its current record low of 0.25%.
"The rampant run in the housing market has surely taken a negative cash rate off the table. We now expect the OCR to be left unchanged, well into 2022," the team said.
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(1) P+I owner occupied loans
(2) investor loans and
(3) interest only loans?
Only when we can see these relative statistics would we be in a position to determine who should pay higher rates and who should pay lower.
Seems to me the commentary could be based on PCness - i.e. homeowners should get preference over investors and interest only is a dirty word.
The bank who insists on an investor paying P only has to find someone else to lend the P receipts to.