Reserve Bank Macro-Prudential Tools

[speights boy]

Could be MB.
Especially for grade A

Confidence at 20-year high

PS:
Striking while the iron is hot ??
Election brought forward from previous guesses, into September ?
G20 & Obama used as the excuses, but making the most of the budget and business confidence in reality.

[GenY]

Maybe a good place for people to update what they hear about these rules.
This is what I have heard.

1. Date the rules come into action: June 30.

2. Interest rate premium: I have heard .5 and I have heard between .5 and 1.5

3. How many properties: I have heard 5 under one entity, I have heard up to 4 with one bank is fine.

4. Rules decided: I have heard RBNZ are still fiddling with rules and will advise (no consulation with proprety associations prior)

Good thread.
so if you have four rentals with mortgages with one bank you should be sweet? Does it matter if you have a line of credit tagged onto each mortgage ie a revolving credit facility?

[Branca]

Oh dear. This is the first I'm hearing of this. So these new rules are an explicit attempt to push investors out of the market? What is the main reason for this? Is it for the benefit of first home buyers, or is it to cool the market?

Whose brilliant idea was it, anyway? An interest rate premium sounds like a horrible undeserved punishment.

[speights boy]

What is the main reason for this?

The banking regulator is telling the banks, people with 5 mortgages are running a commercial business.
Treat them as such.

[Branca]

Hmmm. They'll have to make it very clear what '5 mortgages' means.

[speights boy]

Yeah, of course.
My "5 mortgages" was a gross oversimplification of an in depth policy document in answer to your question.

Have a read initially on these links from Brendan, post # 2604.
Then start delving from there.

Enjoy !
www.propertytalk.com/forum/showthread.php?192-Interest-Rates/page261

[elguapo]

Oh dear. This is the first I'm hearing of this. So these new rules are an explicit attempt to push investors out of the market? What is the main reason for this? Is it for the benefit of first home buyers, or is it to cool the market?

Whose brilliant idea was it, anyway? An interest rate premium sounds like a horrible undeserved punishment.

The RBNZ first and main priority is to ensure the banking system is robust to shocks. With this they are telling the banks they have under priced the risk with larger property investors. The goal will be to reduce the exposure the banks have to larger, highly leverage investors. It may cool the market slightly, but it's more about reducing the impact a large drop in house prices would have on banks.

The other option they have is the general increase in rates, but that has impacts across the whole economy and they are using these targeted tools to minimise that. If they get it right it's very good for NZ IMO.

[Branca]

The RBNZ first and main priority is to ensure the banking system is robust to shocks. With this they are telling the banks they have under priced the risk with larger property investors. The goal will be to reduce the exposure the banks have to larger, highly leverage investors. It may cool the market slightly, but it's more about reducing the impact a large drop in house prices would have on banks.

The other option they have is the general increase in rates, but that has impacts across the whole economy and they are using these targeted tools to minimise that. If they get it right it's very good for NZ IMO.

OK, that makes sense. But why not just impose leverage limits (LVR) on investors? I suppose the higher interest could have a deterrent and cautionary effect on investors... but I still wouldn't like being slapped with the extra bill to pay if I was in that boat (which I'm not ...yet).

If they really want to target it, why not target only highly leveraged cases? It implies that all 'larger' investors are inherently more risky borrowers than home owners. I'm sure some are, of course. But not all.

[speights boy]

But why not just impose leverage limits (LVR) on investors?

I think that has been mentioned.
It is still in their toolbox I guess.

They probably don't want to at present, as it would be too much of a 'shock' on the banks.
It is quite a bit of extra admin and management resources for the banks to make sure they keep inside the new limits.

Far better to let the current LVRs settle down , let the banks get used to operating under that regime, and then to bring in additional measures if they are still required.

[Meehole]

I heard anymore than 5 and the lending has to be from a commercial lender at commercial rates? Most investors I know wouldn't be happy about paying commercial rates so would rather sell down. So I guess that means more properties on the market and house prices peg back or drop?

[speights boy]

The mortgage broker in the article reckoned it was only about a 0.5% increase in rates.
If so, I can't see it having such a huge affect as to be actually noticed much in the housing market.

[drelly]

Anyone have any idea if banks will be coerced into applying this to existing fixed term mortgages?

The mortgage broker in the article reckoned it was only about a 0.5% increase in rates.
If so, I can't see it having such a huge affect as to be actually noticed much in the housing market.

Commercial rates are normally 1.5-2% higher, so if the banks are directed to increase rates, I can't see why they would only go with 0.5%! "It's out of our hands"

[Bluekiwi]

Okay I have been investigating through my "sources", but it is very important if you can, to FIX out 3 or 5 years now, ahead of these rules coming in.
I was already 90% fixed out 5 years and am now getting everything else I can fixed, even loans maturing latter this year, take the break fee cost and fix now, as you should have been doing this anyway with rates about to go up from March.

It looks as if the RBNZ is building the regulations to cover the loop hole of an investor moving loan's so each bank only has 4 properties.
They are also looking at the definition of property vs dwellings - ouch for flats and units and MD's / double incomes.

Chief Economist from one of the banks told me: It was a shock to him, he hasnt printed anything as he does not know the fully story, he will do so when he finds out himself how this will work. He suggested multiple entities owning 4 properties each. Or else fully paying off the smaller mortgages and having some rentals debt free.

Well Known Mortgage Broker: Says it is hard to get proper information on this. He is hoping to have some clarity soon. Has spoken to a couple of senior bankers last week and they didnt even know about it.

Morgage Broker: They are also looking at other tests in addition to number of properties, most likely to capture investors looking for loop holes, with part of the rules based around rent reliance, which will capture those with larger value houses or multiple entities holding property.

I think with this new threat the best thing you can do is fix out 3 or 5 years !!!
Then you have time to sort out your mortgages and your structures and will have a clear and case tested idea of what the rules actually are.
And gives you 3 to 5 years to work yourself into a position to avoid them.

[Davo36]

I think with this new threat the best thing you can do is fix out 3 or 5 years !!!

Nah, this too will be a storm in a teacup I reckon.

And interest rates could go up, down or sideways, no one knows.

[drelly]

It looks as if the RBNZ is building the regulations to cover the loop hole of an investor moving loan's so each bank only has 4 properties.
They are also looking at the definition of property vs dwellings - ouch for flats and units and MD's / double incomes.

I wonder how the associated persons rules will affect this though?

Nah, this too will be a storm in a teacup I reckon.

Why do you think that? Looks pretty serious to me