In essence our banking regulator, APRA, has flexed its regulatory muscle to try and control the level of growth in investment lending.
So why the increased regulation?
Well it appears the main drivers are:
• The level of growth in Investment lending in a low interest rate environment is at a level that is considered too high for the comfort of the regulators;
• The Sydney property market is experiencing potentially unsustainable levels of growth with two consecutive years of 15% price growth;
• The number of commentators warning of a potential ‘property bubble’ are increasing.
I am sure that many investors operating within property markets in capitals such as Canberra, Hobart and Adelaide are far from convinced that there should be concern with their local real estate markets, but the same regulatory approach has been taken nationwide. ‘Propertyology’ provides an interesting commentary on this viewpoint in the attached link (http://www.propertyology.com.au/may-2015-marks-a-new-era-in-australian-real-estate/)
But the reality is that many (some commentators would say ‘most’) lenders have tightened lending policy in areas such as:
• Reducing Loan to Valuation Ratios (LVR’s) on investment lending – in some cases the maximum LVR now available to investors is 80%!
• Increasing interest rates on Investment Loans – you can now expect to pay a higher interest rate on an investment loan versus what an owner occupier would pay.
• Increasing serviceability assessments – effectively loan applicants borrowing power has now reduced with many lenders.
• Removing the willingness to negotiate on interest rates for investment lending
• Reducing the LVR on which Interest Only repayments are accepted.
So what does this mean for borrowers?
• If you are an investor looking to borrow again you will find that the borrowing landscape has changed significantly. A loan that would have been approved by many lenders some months ago may now be harder to obtain. I would suggest you discuss your requirements with a lending specialist such as your local Mortgage Broker.
• If you are an owner occupier looking for finance, you will find that some servicing models have become a bit tighter. However there are positives as well! Lenders still have growth objectives and for strong applications borrowers now have significant negotiating power around interest rates. I would again suggest you consult with your local credit specialist to find the best deal for your circumstances.
• If you are a First Home Buyer – well, entering the property market is still tough, but the regulators are trying to contain property price growth so that may slow property value increases while you are trying to save and locate a property. It is important to understand that there are finance options available for first home buyers that make obtaining finance achievable for many. Clearly affordability remains easier in some property markets than others!
Overall the clear message is that the lending environment has changed significantly over recent months. Your local Mortgage Broker or Credit Adviser can provide assistance in working through the options on offer and help you establish what will suit your personal circumstances.