When purchasing residential investment property in New Zealand, one of the more important things to keep an eye on is policy announcements to do with housing finance. It might seem like a pretty dry thing to do, but staying up to date on these developments can help you avoid any nasty surprises.
The Reserve Bank of New Zealand (RBNZ) can be a prime source of change in the investment lending market. Most recently, the bank has taken another step towards reigning in the surging housing market. A consultation paper outlines some suggested changes for treating residential investment property differently than owner-occupied homes, just in case they want to change prudential policy.
The RBNZ is asking for submissions from banks about how to define a residential investment property loan. The paper proposes a number of options. First, it proposes lumping loans that aren't owner occupier into a new asset category. The final two options are in regards to rental income. A loan would be classified as residential investment if mortgagees service it using 50 per cent or more of income collected from residential property.
As well, the bank suggests that any loan serviced by rental income could be categorised as an investment loan. The bank doesn't say whether investment loans will be more expensive as a result of the new sub-classes, that this is a matter for borrowers and banks to negotiate.
The new policies would not apply directly to borrowers, rather how much capital banks can get their hands on. It notes that over-exposure in Ireland created the devastating housing bubble, something that the bank is eager to avoid here.
"The proposed asset class rule may affect the amount of capital that the banks need to have as backing for some loans, which may affect pricing," the RBNZ said in a Q&A on its website.
"However, each bank will implement the rules according to its own business practices and policies, including decisions on how to price loans."
In any case, make sure you get in touch with an Authorised Financial Adviser. They can offer up some reliable property investment advice and help you figure out a suitable strategy, if these changes do come into effect.
Here's to your financial independence!
Daniel Carney
Authorised Financial Adviser / Investment Property Expert
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info@goodlifeadvice.co.nz