July 28, 2015
You may have recently heard about the changes around investment loans and what banks are implementing to slow down the investment market and the assessment of investor loans.
There have been some more general changes made which apply to all buyers which include increases in lender floor rates and reductions in the proportion of rental and other investment income that can be attributed to loan servicing.
So what do these changes mean and how will they affect you? In a nutshell, most of these changes work to reduce a potential buyer’s borrowing capacity.
Increased floor rates
Some lenders have significantly lifted the floor rates they use when determining whether or not you can service your loan. While your mortgage interest rate may be just 4.5%, most lenders have a floor rate of 7% or above. They will then use this rate as a benchmark and check to see whether or not you can easily make your mortgage repayments if interest rates were 7% or above. They do this to make sure you won’t default on your loan if interest rates were to rise.
Some borrowers may find it difficult to prove they can service their loan at a higher floor rate and, as a result, their borrowing capacity is reduced.
But while owner occupiers may be affected by some of the policy changes made by Australia’s lenders (including increases to floor rates), there are a lot more changes that are designed to only impact investors. One, in particular, is worth a special mention.
Reduction to maximum LVRs
Some of Australia’s lenders have recently reduced their maximum loan-to-value ratio to 80% for investors, which may negatively impact many investors, particularly those looking to purchase off the plan properties.
Investors who are in the process of purchasing off the plan properties may find that while they received a pre-approval from their lender when they started the process, that lender has recently changed their lending policy and will no longer be able to approve the loan because they have reduced their maximum LVR.
While this issue certainly won’t affect all investors purchasing off the plan, if you are going through the process currently, it may pay to speak with your lender or a mortgage broker to see if your home loan will be impacted.
Indeed, with so many lenders making so many changes to their lending policies, the home loan market has become more complex than ever before. As such, it may just pay to speak with a professional.
If you are looking for an investment property loan or would like to discuss these policy changes in more detail, please call Ashley on 0425 826 967 or 9432-2121