Clearly, the late-March policy changes made by the Government have altered the economics of using a mortgage to buy further investment properties, coming
on top of the higher deposit requirements that have already been in play for a few months now.
Then in early May, the Reserve Bank (RBNZ) released the latest Financial Stability Report (FSR), which contained even more discussion around the housing
market. In a nutshell, the RBNZ said:
- If required, the next move would be to raise deposit requirements for investors even further.
- Then they’d look at caps on debt to income (DTI) ratios for new investor mortgages, but would of course need to get permission from the Government
first before DTIs could be enacted.- Indeed, DTIs may not be operational until November at the earliest.
- They’re not keen on interest-only (I-O) lending restrictions for investors, partly due to enforcement potentially being difficult, but also because
demand may naturally fade anyway (due to the loss of interest deductibility and therefore an incentive to raise equity levels) and because I-O
loan applications are already tested on a principal repayment basis anyway.
The key words there are ‘if required’. In fact, we don’t think DTIs will actually be imposed in this cycle, because by November it looks likely that the
market will have slowed (but not slumped) due to factors already in play – e.g. general affordability constraints, the new tax rules (both interest
deductibility and extended Brightline), and the existing LVR requirements. For similar reasons, we doubt that deposits will be raised above 40% either.
So where does this leave investors in general? Basically, we think plans can be made on the basis of the existing rules being the status quo until at least
