Many of you may be aware that the Reserve Bank has been planning to introduce a new rule that would immediately impact on property investors with five or more properties with one Bank.
The rule instructs banks to classify clients with more than five properties as a ‘business’. These clients are currently assessed under the residential investment rules.
Under the new rule a property investor with five or more properties would be treated as a ‘business’ and assessment differs from the residential investment rules. As a ‘business’ the risk weighting to the debt increases which would mean the lending costs would then also increase.
This rule was supposed to be introduced on the 1st of July 2014. It has now been pushed back to December 2014 to allow more time for the lenders to put procedures in place to deal with this rule.
The new rule reads as follows:
“If the bank has recourse to, or is aware of, more than five properties owned and let by the borrower directly or through a company or any other ownership structure of the borrower, and the loan is predominantly serviced from the rental income those properties generate, then the loan can no longer be classified as a residential mortgage loan but should be classified as either income producing real estate or SME retail lending. The bank is required to verify whether the customer has any other rental properties or residential mortgage loans with another lender or lenders as part of its credit origination process.
For the purpose of this section, predominantly means more than 50 percent.”
If you currently have more than 5 properties or you are considering purchasing more that will put you at or above this threshold I would strongly recommend reading THIS document.
Note that non-bank lenders are likely to be excluded so this may be an option moving forward that is worth looking at.
Please contact us at Kris Pedersen Mortgages – how about completing our online contact form – click on ‘application’.