One of New Zealand’s biggest banks has made changes to rules around lending on rental properties making it easier for investors to buy existing properties, which a mortgage broker says, could see them competing with first-home buyers again.
ANZ has increased the percentage of rental income they take into consideration when assessing rental applications for older homes after introducing a blanket rule that sees both new and existing homes treated the same.
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An ANZ spokesperson confirmed the changes and said it had simplified applications for property investors by now including rates and insurance expenses to calculate rental income and this was part of a regular review of its affordability settings.
The change also better aligned its processes with other banks, they said.
EasyStreet Mortgages mortgage adviser Gareth Veale said the recent changes potentially gave investors wanting to buy rental properties tens of thousands of dollars more buying power.
EasyStreet Mortgages financial adviser Gareth Veale says the changes make it easier for investors to buy existing houses. Photo / Supplied
“Rather than have to buy new properties, people can buy old properties now and the calculation works better.”
While ANZ was the first bank to make the move on the back of the Government’s confirmation it would from April 1 begin bringing back interest deductibility for all rental properties, Veale expected the other banks to soon follow suit.
“When Labour put in the interest deductibility, the cost for an existing property increased because you’d have to pay more tax on the property because you didn’t have interest deductibility. Whereas on a new property, you had interest deductibility so less costs involved.
“But now the Government has changed it to every property is interest deductible again. The banks are now moving toward treating all rental income the same.
“So those landlords that have portfolios that include old properties, their servicing calculations are looking a lot better.”
Previously ANZ shaded (reduced the income allowed for the calculation) by 12% not including rates and insurance and existing properties by 24% not including rates and insurance, which he said could add a further significant cost.
Under the new rule, about 27.8% of the income was shaded including rates and insurance making it more favourable for borrowers.
BNZ was the only other bank that had always treated both existing properties and new builds the same, shading about 30% of the rental income.
“ANZ’s recent change make their shading of rental income slightly more favourable than BNZ, whereas previously BNZ might have been better when rates and insurance were factored in.”
Veale said while there were still other barriers to getting a rental property such as the higher interest rates, the latest move significantly increased an investor’s chances of buying an existing property.
ANZ now treats existing and new builds the same when calculating the percentage of rental income they take into consideration when lending on investment properties. Photo / Doug Sherring
CoreLogic chief economist Kelvin Davidson believes high interest rates are still the biggest barrier to people getting mortgages. Photo / Peter Meecham
However, while positive for investors, it could also mean first-home buyers were faced with more competition as they fought over the same stock.
“A lot of investors when the interest deductibility was being phased out started to offload older rental stock. What you see now is they will be holding onto those because they’ve got interest deductibility on them and trying to pick them up again as well.
“Whereas the deductibility kind of tilted the balance on investors focusing primarily on new builds, it’s now an open market to what investors can invest in.”
CoreLogic chief economist Kelvin Davidson said while changes such as lower tax bills, not shading as much rental income helped and upcoming changes to LVR and debt-to-income ratio rules, interest rates were still the biggest barrier for people taking on new mortgages especially as interest rates were unlikely to drop until next year.
“I think there are some investors coming back, but is this the thing that will tip the balance to a flood of investors? It seems a bit unlikely when mortgage rates are still where they are.”
Davidson said while one bank might be changing its shading rules, other banks could be relaxing rules in another part of the application.
First-home buyers and investors seemed to be buying a mix of new and older stock so while the latest change might see more investors buying, he did not think there would be a sudden surge in demand for one type of property.
“We are actually seeing pretty reasonable splits across both types. So, I’m not sure that’s a game changer from that perspective because actually first-home buyers have actually been in a lot of new builds as well.”
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