Bank consulting on property investor loans
The Reserve Bank is consulting on a new asset class treatment for mortgage loans to residential property investors within its capital adequacy requirements. A primary purpose of the consultation is to seek views on how to best define a property investment loan.
Consultation closes on 17 April* and once the Reserve Bank has settled upon a definition, it proposes to amend existing rules by requiring all locally incorporated banks to include residential property investment mortgage loans in a specific asset sub-class, and hold appropriate regulatory capital for those loans.
Reserve Bank Head of Prudential Supervision Toby Fiennes said: "International evidence suggests that default rates and loss rates experienced during sharp housing market downturns tend to be higher for residential property investment loans than for loans to owner occupiers.
"The proposal would bring the Reserve Bank's framework more into line with the international Basel standards for bank capital. The proposed rule amendment is designed to ensure that banks hold adequate capital for the risks that they face from investment property lending."
The Reserve Bank has previously consulted on a possible definition that would have seen loans to borrowers with five or more residential properties classified as loans to residential property investors. Partly as a result of submissions received, the Bank has reconsidered the definition, and is now consulting on three possible alternative ways to define loans to residential property investors:
- if the mortgaged property is not owner-occupied; or
- if servicing of the mortgage loan is primarily reliant on rental income; or
- if servicing of the mortgage loan is at all reliant on rental income.
The proposed new rule would apply to all locally incorporated banks.
While the current proposal is not a macro-prudential policy proposal, creating consistent asset class groupings to be used by all banks would help the Reserve Bank to implement targeted macro-prudential policies in the future, should that become necessary.
*Update: Please note the deadline has been extended to Friday 17 April 2015. The original deadline had been 7 April.
Angus Barclay, External Communications Adviser
Phone 04 471 3698, mobile 027 337 1102, [email protected]