Investors become commercial borrowers

The Reserve Bank has issued a summary of submissions and final policy decisions based on its consultation paper reviewing bank capital adequacy requirements for housing loans.

That paper had proposed that if a borrower had lending on four or more dwellings with a bank, the loan could no longer be classified as a residential mortgage loan.

The Reserve Bank said some submissions to that paper had argued that drawing a boundary at a specific number would just encourage customers to split their borrowing across more than one lender, potentially limiting a bank’s ability to assess the customer’s credit risk and increasing overall risk, and disadvantaging borrowers with considerable other income that made the repayment of their loans not dependent on the rental income from those properties.

It said in response: “We are retaining a count-based element in the determination of the boundary between residential mortgage lending and commercial property investor lending, although this will also include an income test. The count threshold, however, has been increased to five properties and greater clarity will be provided as regards the treatment of multiple dwellings within a property.”