Loans to residential property investors are being lined up by the Reserve Bank to face new clamp-downs as part of moves to try and dampen surging property prices and protect against a future down-turn.

The Reserve Bank has told the banks it wants them to categorise residential property lending as a separate asset class and hold more capital against the loans as it believes these types of loans have a higher chance of default.

So how do investors prepare themselves for any potential changes?

It's not known exactly how a residential property investor loan will be defined yet.


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But in a consultation paper produced in March by the Reserve Bank three options were put forward as ways to classify an investment property loan;

* if the mortgaged property is not owner-occupied; or
* if servicing of the mortgage loan is primarily reliant on rental income; or
* if servicing of the mortgage loan is at all reliant on rental income

The central bank has proposed that the new classification comes into effect from July and told lenders they will have nine months to phase it in.

Feedback on the paper was due in by April 17.

Once the loans are categorised the Reserve Bank could then introduce macro-prudential policies that would apply to that category should it choose to do so.

Some suggestions are that borrowers in that category could face higher interest rates or the need to have a debt to income restriction but so far the Reserve Bank has not indicated what moves it would take.

Bruce Patten, a mortgage broker with Loan Market, said he had already had a lot of people asking about the changes but it was still a wait and see game until it was finalised.


"Everybody wants to know what it will mean and what to do."

In Britain residential investors or buy-to-let owners are charged are margin on their interest rates which could be one possible option here.

Patten said those who were concerned about their interest rates being put up should fix it.

"The reality is once it is fixed the bank can't touch the rate until it comes due next time."

But Patten does not believe interest rate increases are inevitable.

"I still feel we are in a very competitive environment. Banks are likely to be told to hold more capital.

"I don't see it as having an impact on rates."

He also recommended investors be cautious about jumping in to try and beat any changes.

"It's better not to rush in unless you are ready to buy."

Peter Lewis, vice-president of the Auckland Property Investors' Association, said his advice to residential landlords was to adopt a conservative approach.

"Keep your loan-to-value ratio less than 60 per cent. Avoid negative cash flow property."

Lewis said the current Reserve Bank proposals, if implemented, would seem to impose little in the way of extra costs or lending restrictions on the mortgage market right now, but do open the way for more action in the future.

"My view is that the Reserve Bank, having taken the politically and socially negative action of largely cutting first home buyers out of the property market with its 20 per cent deposit requirements, is now looking for a way to restore their own image by being seen to be penalising an unpopular target.

"Like all storms, this one will pass and durability is the key to survival.

"Professional landlords like me will sit it out, minimise their risk, and wait for the market to turn."

Kirk Hope, chief executive of the New Zealand Bankers Association, said there was little banks could advise their customers on yet.

"The reality for banks is until the rules are published we can't really say anything from a bank perspective to customers. Any comment is a bit speculative at this point.

"Any impact on property investors will depend on their individual circumstances. At a broad level we are waiting for details of the policy."

But he doubted the changes would result in costs being passed on to customers and said he did not believe the reclassifying of lending to property investors would slow down any lending in that market.