In the last months we have seen lenders tightening up their lending to property investors for both existing and new customers.
The Australian Prudential Regulation Authority (APRA ) recently moved to tighten lending criteria for property investment loans, many lenders are forced to reduce their lending risks.
The reason for the stricter lending criteria is that APRA set a benchmark of 10% maximum growth for residential investment mortgages. The big banks were beginning to exceed this benchmark level and APRA had to take action.
By taking these measures, APRA is attempting to make the property market conditions safer for consumers. Rapid growth in property investment lending can be perceived as risky as investors may be placing ‘all their eggs in one basket’ rather than having investment diversification.
Lending criteria to reduce growth varies from lender to lender but we have seen changes across the board from banks to non banks. Some have already implemented the changes while others will be applying them soon in the coming months.
What do the changes mean for investors?
While banks and other non bank lenders have announced varying policies here is an overview of some of the measures that have been put in place for both new and current borrowers:
Stricter criteria to approve investor loans
This includes excluding certain properties for investment purposes. For example, not lending in certain postcodes or types of properties that are deemed high risk. Rural properties and high density apartments are prime examples.
Increased Interest Rates for Investment Loans
We have seen an increase in investment loan interest rates from the major banks and non-banks. This means that banks are no longer offering discounts for investment loans as they previously did and packaged.
Deposits raised up to 20%
Lenders have also increased the required deposit. Previously, property investors could borrow up to 95% of the property’s value but some lenders require a 20% deposit where they can only borrow up to 80% of the property’s value.
Some lenders are not allowing investors with a current investment property to use the existing equity in that property to leverage for further investments where the LVR falls outside the 80% LVR benchmark – effectively forcing them to refinance.
Rental Income For Servicing Decrease
Lenders have reduced the amount of rental income taken into consideration when assessing an applicant’s income. Some have also taken out the negative gearing component in the assessment. This means that property investors will need to show other income outside their property investments to obtain a loan if servicing the loan is tight.
What do the changes mean for owner occupier buyers?
Predictions are that the owner occupier market will increase as a result of tightened criteria for property investment loans. Many lenders have recently announced a raft of changes to new owner occupier loans including lower interest rates, cash back offers and the waiving of annual fees.
Where to From Here?
While these changes affect banks and non-banks in different ways there are discounts that still can be found.
If you are looking for a home loan deals for owner occupied properties go to our compare home loans page.