Many of you have probably noticed the increased media attention being given to investment lending at present. So what’s the big issue?
Quite simply, APRA (the Australian Prudential Lending Authority) is trying to reign in the strong growth in investment lending. From January 2014 to January 2015, there was a 10.8% increase in investment lending growth compared to 6.4% in owner occupied lending growth. The bulk of the investment lending growth was in Sydney and Melbourne.
APRA issued guidance to Australian ADI’s (Authorised Deposit-taking Institutions) in late 2014 stating the 10% target for investment lending growth, but also pointed out it was not a ‘hard target’, simply guidance. However, it appears many ADI’s have ignored the guidance and more recently (mid 2015) APRA has directed ADI’s to increase the amount of capital they must hold in order to manage the inherent risk in mortgage lending and APRA has also set a minimum floor level for lenders to use to determine a borrower’s ability to service a loan along with a number of other directives.
As a result of this, many lenders have announced they will be increasing the interest rate on their investment loan portfolio; both for new and existing investment loans. Additionally where many lenders have previously given discretionary pricing discounts for investment loans, these discounts will now cease. A good number of lenders have now limited the maximum investment loan to 80% of the security property value and one lender (AMP) has said it will no-longer write investment loans until further notice. Some lenders have also pulled away from Self Managed Super Funds (SMSF) Lending or introduced tough ‘liquidity test’ requirements that will be hard to meet.
So what are the implications?
For many borrowers with significant equity in other properties, there will be little impact. You simply borrow 80% against the new property and the remainder against the equity in your existing property. The minimum servicing floor rate will knock out some borrowers who would otherwise have been able to borrow additional funds, or at least reduce the amount they are able to borrow. The real impact will be felt by those who have exchanged on an off-the-plan purchase 6+ months ago and need to get a loan approval now or over the next 6-12 months. The lending environment is certainly not what it was in late 2014!
Thankfully we have a very comprehensive understanding of the lending landscape and can assist in this ever changing and more complex environment. You can call us on 02 8765 8700 to have a chat about how these changes may affect you.