Tough lending rules could mean higher rents

Tough new lending restrictions requiring property investors to have a 40 per cent deposit could result in higher rents and a shortage of rental accommodation, experts say.

The Reserve Bank will introduce the new loan-to-value regulations on September 1 - doubling the current deposit required for investors seeking loans to buy property in the regions.

Tauranga Property Investors Association president Grant Harris said restricting investors would reduce the supply of rental properties and have the knock-on effect of increasing rents.

"There are already supply and demand issues for rentals in Tauranga."

Mr Harris said some investors would be impacted more than others.

"Whilst the new LVR policies will impact on all investors they are likely to have a bigger impact on the short term speculators/traders than the long term property investors especially those that have been in the market for a long time with large portfolios and access to high equity in their property portfolio.

"If the LVR restrictions cool the price increases from property speculators then that will be a good thing. Reduced activity from any type of investor would also have a knock on effect for developer's appetites to develop new properties."

Mr Harris said having prudent lending policies in place was a good thing but previous LVR restrictions had cooled the market sufficiently.

"There are other factors at play in terms of high house prices including high immigration, high demand and low housing supply, and the "trickle-down effect" from Auckland. Also historically low interest rates are also stoking the housing market."

Bay property investor Lindsay Richards, who has 12 rentals, said the regulations smacked of "desperation".

The real pressure on house prices related to supply and demand, he said.

"This is new territory and those that have already got properties are laughing all the way to the bank but those that want to invest in the future have a very hard road to hoe."

Ross Stanway, chief executive of Eves and Bayleys Real Estate, said the rules could reduce the rental pool in the city and "that is already an issue now".

"For those that have the 40 per cent deposit - given the shortage of rental properties and therefore the likelihood of rents continuing to increase - it may provide better returns for investors."

Tauranga Harcourts managing director Simon Martin said if an investor did not have a 40 per cent deposit or equity then they could not buy "and will have to step out of the market".

"The rental market is strong with good activity but the new LVRs could reduce the number of properties available for rent."

There could also be a counter action if the Official Cash Rate dropped because it usually boosted real estate sale volumes, he said.

Auckland Property Investors Association president Andrew Bruce said property markets went through cycles and there was a ripple effect that could hit the regions.

He believed Tauranga would still be attractive for Auckland investors because property was generally cheaper and the returns were better.

Trade Me figures show tenants in the Bay of Plenty had a $3120 increase over the past year with the median weekly rent jumping to $420 a week.

What are LVRs?

• The loan-to-value ratio (LVR) is the amount of a loan compared with the value of a property.

• It is calculated by dividing the loan by the property value.

• In 2013 the Reserve Bank introduced LVRs which meant a 20 per cent deposit was normally needed, and last year it raised that to 30 per cent for Auckland investors.

• On September 1, banks will be forced to require a 40 per cent deposit for all investors - for at least 95 per cent of loans in this area.