Landlords riled over loan rules
Concerns have been raised over the impact of new property investor lending regulations adopted by banks on Palmerston North landlords.
Landlord Shane Storey said the rules would restrict new lending to many, if not most, landlords, making it more difficult carry out major repairs and maintenance, or comply with new requirements to improve rental conditions.
The Reserve Bank has announced new loan to value ratio (LVR) restrictions that require banks to have no more than 5 per cent of new lending to residential property investors, be people with a deposit of less than 40 per cent (a 60 per cent LVR).
While the rule doesn’t apply to pre-existing loans, landlords with a mortgage over the 60 per cent LVR limit won’t be able to borrow to fix or improve their properties. The exceptions are when there has been been a fire, a natural disaster, or adherence to structural requirements, such as seismic standards.
Mortgage Link Manawatu advisor Craig Seton said the restriction would widely affect Palmerston North landlords, with many having existing loans with LVRS well above the new limit.
‘‘Quite often you’ll see people who are leveraged right up to [the previous limit of] 80 per cent.’’
Storey said landlords were being told to install more insulation and improve the quality of New Zealand’s rental accommodation, and most would need to borrow to do that.
If it came down to having to sell some of their rental properties to pay for the needed improvements, it would be landlords in the smaller towns who’d be worst off, he said.
‘‘[Landlords in] the likes of Hamilton and Tauranga where house prices have gone up a lot will be fine. But in the likes of Sanson or Woodville, smaller places that haven’t had those capital gains, will be stuffed,’’ he said.
‘‘The left hand’s not speaking to the right hand, they just haven’t thought it through.’’
Reserve Bank external communications advisor Angus Barclay said their primary responsibility in this case was to ensure the banking industry was not making too many risky loans.
‘‘We acknowledge it’s got an impact on investors ... But we’re in the business of regulating banks, so the industry is safe, stable and able to continue into the future.’’
The new regulations don’t officially come into force until October, but most banks are already applying them.
ANZ spokesman Stefan Herrick said the Reserve Bank had made it clear they expected banks to adopt the new rules as soon as possible.
‘‘The Reserve Bank wanted the banks to immediately ‘act in the spirit’ of the new restrictions. Several, including ANZ, have responded by applying them as soon as possible.’’
Westpac spokeswoman Hilary Marrett referred questions on the bank’s policy relating to LVR restrictions back to the Reserve Bank. But Marret did say the the impact of requiring landlords to improve the standards of rental property while also limiting their ability to borrow has already been pointed out to the Reserve Bank during consultation on the new regulations.
Barclay said a regulatory impact assessment, which would consider these issues and public views on the regulations, was under way but wasn’t expected to be complete until October.