Borrowing Alert

CHA urges you to speak with the commercial lending manager of your bank to understand how your organisation might be impacted.

Under the proposed new reporting requirement to take effect on July 1, 2014, “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”.

CHA is contacting the Reserve Bank to clarify how this might impact its members. We believe that it will require banks to classify a CHO as a wholesale customer for lending purposes. This means that the interest rate applied to CHO borrowing will be determined by your bank’s lending model (each bank has its own). The lending model produces a risk profile taking into account the financial strength of your organisation (assets, cash flow, etc.) and the characteristics of the proposed real estate to be lent against (location, type, etc.). The loan pricing is then set according to the level of risk; borrowers could see higher, lower or no change in their rates. Previously, many organisations would be offered the bank’s standard residential mortgage rate.

CHA encourages you to contact the commercial lending manager of your bank to inquire about how this may change your borrowing costs. Please let us know what you find out. The consultation period ended on April 28, but we can still try to influence the final implementation rules. Chris Glaudel is the staff lead on this issue and can be contacted at [email protected] or at 027 462 0605.

Read the consultation document Reserve_Bank.pdf