Following media reports that the Reserve Bank Governor wanted to limit the number of rentals that investors could own, the NZPIF requested a meeting to clarify and discuss their reasons for such a move.
The officials we met stressed that the Governor was widely misquoted and that the Bank has no interest in how many rental properties any investor may own.
However they did state that a key role of the Bank was to promote the maintenance of a sound and efficient financial system. They believe that, in order to do this, they need to know who is borrowing money for what purposes, so that the riskiness of the borrowing can be assessed.
The Bank believes that loans for rental property are riskier than loans for owner occupied homes, so they want to classify some residential property investment loans as rental property loans separately from ordinary residential loans. While this may require a higher capital requirement for banks, the size of the requirement has not been assessed.
The Bank is moving away from the 5+ rental property policy they were looking to introduce earlier this year. Rather than the number of properties owned, they are now looking at the level of income derived from a rental property in order to determine if the loan for that property needs to be classified as a rental property loan.
The Bank is still in discussion with analysts of the trading banks to come up with an appropriate way to classify rental property loans. Until this task is completed, we do not know how the industry will be affected.
The clear message from the Bank, however, is that some form of classification for rental property loans will be introduced. How this will affect rental property owners and who will be affected, has yet to be determined. The NZPIF will keep a watching brief on this situation and update members as soon as there is new information.
The Reserve Bank has produced a Q & A series on property investment loans. Some of your questions may be answered here