Over the last 2 months, many of Australia's lenders have made some sweeping changes to their lending policies.
While the vast majority of policy changes have been targeted at investors, there have been some more general changes made which apply to all buyers.
These changes 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.
Take increased floor rates for example. 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.
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.
At Mortgage Choice, we have access to a wide range of lenders and literally hundreds of products, so we can help you navigate through the current lending changes to find the right lender and loan for your needs. Further, we do all of the legwork on your behalf so that you won't have to worry about a thing.
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