Steeper lending charges on the way?

The NZ Reserve bank is contemplating targeting landlords of investment properties in an effort to cool the NZ housing market. The bank is taking particular aim at the most risky borrowing, solely reliant on rental income for a landlord to repay loans.

Reserve Bank announcement that it was seeking feedback on lending to residential property investors and more particularly how exactly to define those investors or their loans. The bank has rejected the concept of eyeing landlords with more than four properties.

Steeper lending charges have been widely tipped but restrictions on lending are also possible.

Nothing has been decided but the upshot could be that landlords might have to pay higher interest rates and their borrowing might have to be treated differently by the banks so their risk weighting would rise. With immigration continuing at unprecedented levels, and the number of newly built houses only just beginning to ramp up, Auckland’s shortage of homes will continue to underpin price increases.

To read this full story on the NZ Herald click here.

One result of the surge in housing prices is rents have risen 26 per cent in the past five years while house prices increased 38 per cent.

Another suggestion that rents are not at their peak is interest.co.nz’s rent ratio table which compares the average house price with the average rent. As a broad brush rule, a number above 20 means it is economically reasonable to rent. A number well below 20 makes a better case for buying. In January the ratio in Auckland was 25.44. In the North Shore the figure was 29.35, west 25.84, central 24.31 and south 25.91.

Three main factors restrain landlords from increasing their rents.

1. Supply and demand. They can’t unilaterally increase the rent above the market.

2.  The tenants’ ability to pay. If they fall into arrears that’s a problem for both landlord and tenant.

3. Inertia. Low interest rates mean existing landlords aren’t under financial pressure,

To read the full story click here.

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