Home-loan changes postponed
The Reserve Bank has delayed the introduction of more home-loan rules for rental properties, but has not bowed to pressure to tone them down or scrap them.
A little-known set of new restrictions was meant to come into force yesterday as part of a review of banks' capital requirements.
However, the central bank has decided to put off some of the changes until December after opposition from banks and investors.
Under the new rules, landlords with mortgages on five or more properties will be classed as small businesses or corporate borrowers.
That will place them under closer scrutiny as well as force banks to set aside more money to cover the higher "risk weighting" on business loans. Both factors are expected to lead to significantly higher interest rates and premiums for landlords.
An ANZ survey of property investors last year found that half owned four or more properties, suggesting thousands would be affected.
Rule Financial Services mortgage broker Simon Rule said most people would have no idea about the Reserve Bank's latest tweak.
However, it could sit alongside loan-to-value restrictions (LVRs) as one of the biggest financial changes to affect borrowers in recent years, he said. "The people who are going to pay the ultimate price will be the people renting the property from the landlords."
The central bank "boffins" were interfering with a system that was already secure, Rule said. "Banks in this country are not irresponsible lenders. [They] do not let you have five properties or more unless you've got good equity and sufficient income to service the debt."
Squirrel mortgage broker John Bolton said it was highly unlikely that landlords would be able to pass the costs on in full.
"That presumes tenants can afford it," he said. "The reality is there will be a rent ceiling out there at which point people start to change behaviour."
The Reserve Bank was "trying to engineer a slowdown in people making poor property investment decisions". Many investors had negative cashflow on their properties and would "start to squeal" as interest rates and servicing costs rose, Bolton said.
The Reserve Bank's summary of submissions reveals that banks and property investors fought to soften the new rules. One argued that customers should be treated as corporate clients only if they were borrowing more than $1 million.
Submitters suggested borrowers would dodge the rules by splitting their portfolio among banks.
The Reserve Bank said it would be the lender's responsibility to check if the customers had loans on properties elsewhere. One submitter said that doing so would breach privacy laws, while others said they would need time to update their processes and retrain staff.
One bank estimated it would take 18 months to set up a new model, dismissed by the Reserve Bank as "unduly lengthy". However, the central bank agreed to delay the changes by five months.
"These extensions to the time frames are necessary to allow for some of the technical detail of the requirements to be further clarified with banks," it said.