NZ central bank mulls tighter lending rules for property investors

PUBLISHED : Wednesday, 11 March, 2015, 4:00am
UPDATED : Wednesday, 11 March, 2015, 4:00am

New Zealand's central bank signalled it might tighten rules on lending to property investors in another attempt to cool a rampant housing market without raising interest rates.

The Reserve Bank of New Zealand said it was seeking views on how best to define property investment loans, which banks would be required to put into an asset sub-class and hold appropriate capital for those loans.

The proposed rule amendment "is designed to ensure that banks hold adequate capital for the risks that they face from investment property lending", the bank said in a statement.

"It looks to me like this is the first and necessary step to implementing some macro-prudential tools for investors," said Shamubeel Eaqub, a principal economist at the New Zealand Institute of Economic Research. "The key constraint is how do you define an investor?"

The reserve bank, which introduced limits on low-deposit mortgage lending 17 months ago, has said it is concerned about the housing market, where a shortage of properties saw prices soar 13 per cent in the year to February.

It is unwilling to raise borrowing costs because the slump in oil prices and a firm New Zealand dollar have pushed inflation below its 1 per cent to 3 per cent target band.

The reserve bank previously indicated it was looking at defining an investor as someone with five or more properties. It is consulting on three possible alternative definitions for an investor loan.

They are if a mortgaged property is not owner-occupied; if servicing of a mortgage loan is primarily reliant on rental income; or if servicing of a mortgage loan is at all reliant on rental income.

Consultation closes on April 7 and, once a definition is settled on, the reserve bank said it would propose to require banks to include such loans in a specific sub-class.

While the proposal was not a macro-prudential policy, creating consistent asset-class groupings to be used by all banks would help to implement targeted macro-prudential policies if necessary in the future, the central bank said.

"It's trying to say these investors are likely to face more stringent conditions when it comes to borrowing in terms of how much gearing they can have," Eaqub said. "It's heading in the right direction, but the underlying issue has not changed. It's still very much about supply and until we resolve that, these things are essentially just buying time."