In May, Reserve Bank governor Graeme Wheeler identified three "systemic risks" facing the financial system.
In May, Reserve Bank governor Graeme Wheeler identified three "systemic risks" facing the financial system.
Auckland investors must have 30% deposits from November 1.
Landlords remain largely ignorant of new Reserve Bank rules which kick in next Sunday, demanding Auckland investors have 30 per cent deposits.
A Westpac NZ online survey of 2000 property owners found only 5 per cent knew when the changes came into force, nearly 30 per cent had not heard anything about the changes and 53 per cent had heard something but did not know the details.
Westpac concluded that property investors, particularly in Auckland, were worryingly unaware of the detail and implications around the new LVR regulations.
An "alarming" 61 per cent of new investors had heard something but knew no details, the bank said.
Of current property investors who are looking to buy again in the next 12 months, 17 per cent had not heard anything about the pending changes and half had heard about them but knew no details.
The Reserve Bank is tightening LVR rules to reign in Auckland investors, ensuring banks demand 30 per cent deposits for a mortgage secured against an investment property. The change comes into effect on November 1.
This is one month later than initially proposed, to enable banks to adapt their systems for the new rules.
Restrictions outside Auckland are being eased after November 1.
Banks will be able to make up to 15 per cent of their new mortgage lending to borrowers with LVRs exceeding 80 per cent, regardless of whether the borrowers are owner occupiers or residential property investors.
Yet many landlords remain in the dark about the new 30 per cent Auckland LVRs.
Jamie Farmer, Westpac consumer banking acting general manager, said investors should know about the changes because they are imminent.
"Any prudent property investor should have, or should be, making themselves fully aware of the new regulations and what they might mean to them as part of their planning, research and the deposit they require," Farmer said.
"Two questions they want to ask themselves is: what do I want to achieve - capital gain or yield - and what do I need to achieve that? Answer those questions and they can then start formulating a plan to get them there and that should include understanding the regulations."
Submissions made to the Reserve Bank on the new LVR Auckland policy were mixed.
Several respondents felt that the policy would have a limited impact on house prices, given that supply shortages (and low interest rates) appear to be a key driver of Auckland house prices, the Reserve Bank noted.
Respondents also suggested that many investors currently borrowing at 70 to to 80 per cent LVR would be able to obtain more equity by restructuring their borrowing, for example putting more borrowing against the family home or other properties.
In May, Reserve Bank governor Graeme Wheeler identified three "systemic risks" facing the financial system.
He first cited Auckland's median house price, which was 60 per cent above the 2008 level.
Auckland house prices had been rising rapidly since late last year.
That reflects ongoing supply constraints and increased demand, driven by record net immigration, low interest rates and increasing investor activity.
Prices in the Auckland region have become very stretched, increasing the risk of financial instability from a sharp correction in prices, he said.
A second area of risk relates to the dairy sector, experiencing a sharp fall in incomes due to lower international prices.
He said many highly leveraged farms are facing negative cash-flows, and the risks will become more pronounced if low milk prices persist beyond the current season.
The third key risk is from current very easy global financial conditions.
Low interest rates are encouraging investors into riskier assets in the search for yield.
Wheeler said prices of financial and real assets were becoming overextended in many markets.
Investor notices drop in numbers at auctions
Ron Hoy Fong noticed big changes in the Auckland housing market a few weeks back. Photo / Jason Oxenham
Ron Hoy Fong noticed big changes in the Auckland housing market a few weeks back. The third-generation Kiwi with an $18 million portfolio and $7 million debt sees auction rooms emptying.
"More properties are being passed in. There are noticeably less and less people at the auctions," he said, partly attributing that to the 30 per cent LVRs on Auckland residential investors.
He is well aware of the changes coming into force next Sunday, November 1.
