ANZ has tightened its affordability criteria for investor lending, only counting 65% of rental income when assessing new mortgages rather than the previous 75%.
Down from 75%, the new servicing calculation is the first major change from a big-four bank since the government implemented its housing reforms, according to Good Returns.
ANZ explained that recalculating rental property income is directly related to the government's tax-deductibility changes that prevented investors from offsetting interest against their rental income. The bank's decision reflects that investors would be 10% worse off under the new reforms as they prepare for a financial hit under the new regime.
However, ANZ clarified that new builds are exempted from the new servicing calculation changes, and it will continue to count 75% of rental income on new properties.
“In late March, the NZ government announced a number of housing policy changes as a means of reducing the heat in the NZ housing market along with supporting first-home buyers,” an ANZ spokesperson said, as reported by Good Returns.
“One of these policy changes was to remove the ability for property investors to offset their interest expenses against their rental income when calculating their tax obligations. Although this is to be phased in over a four-year period from October 1, 2021, we consider this change will have an impact on serviceability for many investors.
“As a responsible lender, ANZ has an obligation to appropriately reflect this within our lending assessment process for new residential investment lending. So from mid-May, we will be decreasing the amount of rental income that we take into consideration within the assessment from 75% to 65% to initially reflect this policy change.”
The bank has already informed mortgage advisers of the adjustment, which will come into effect on May 13, 2021. It expects the revised servicing calculations to impact investors' ability to borrow – with the other big-four lenders and rivals expected to also impose new serviceability rules.
An adviser commented that the changes might make it more difficult for people who want to become landlords.
“While ANZ is the first bank to do this, they are usually at the forefront with these changes, and I wouldn't be surprised to see the other banks follow,” the adviser said, as reported by Good Returns.