'Unintended consequences' of landlord crackdown

It was revealed yesterday that the Reserve Bank wants to bring in a restriction on lending to property investors with a loan-to-value ratio of more than 60%.

It is consulting on the suggestion but it is proposed the change could happen in September. Banks have been told to honour the spirit of the rules immediately.

The new rules would remove the distinction between Auckland and the rest of New Zealand. Banks would be allowed to lend up to 10% of new loans to owner-occupiers with a deposit of less than 20%, no matter where they were in the country.

James Lockie, of General Finance, said while the move would shut down some property investors, it would have little effect on others.

In Auckland in particular, anyone who had owned a property more than a couple of years would have amassed enough equity not to be troubled by a restriction, he said.

“It doesn’t stop people buying investment properties. It just means that a different group get to buy them. They won’t be first-home buyers buying investment properties while flatting with their friends because they won’t be able to get a 40% deposit together. But it does allow someone who has had five or 20 years in the market to buy another one. That’s not necessarily what the Reserve Bank was hoping for … they’ve turned off one but haven’t done anything to the other.

But commentator Olly Newland said investors would probably opt for new builds, which will still be exempt from the LVR rules, which would push prices up on those new properties.

“There are definitely consequences. Mostly bad. The only positive is that it will dissuade people from going completely crazy. We all think house prices are too high. So if this tempers the market that will be a good thing,” he said. "But I suspect it will simply distort the market.”