May 31, 2018
In what may signal good news to investors, Australia’s Prudential Regulation Authority (APRA) has decided to lift its benchmark on investor loan growth.
In an effort to cool investor demand in the property market, APRA introduced a 10% growth benchmark on investor loans in December 2014. According to the regulator, the benchmark has led to a clear reduction in higher risk lending and growth in investor loans has moderated.
The benchmark, along with restrictions APRA put in place in March 2017 has had a direct impact on the cost of borrowing on investment loans, with some investment loan rates lifting by as much as 0.3%.
On the 26th of April, 2018 APRA announced its plans to remove the investor loan growth benchmark, which was intended as a temporary measure, and replace it with more permanent measures to strengthen lending standards.
From 1 July 2018, if lenders can prove lending has been below the investor loan growth benchmark for at least the past six months; their lending policies meet APRA’s guidance on serviceability and their lending practices will be strengthened where necessary, they will no longer have to adhere to the 10% benchmark.
APRA’s decision may bring some relief to would be property investors as these changes could result in more competitive pricing on investment loans.
Furthermore, it could help soften the blow capital city dwelling values are currently experiencing. CoreLogic’s Hedonic Home Value Index showed that capital city dwelling values recorded their first annual decline since 2012, driven by a 0.4% decline in the largest capitals Sydney and Melbourne over the month of April.
Interestingly, regional dwelling values grew 2.4% over the last 12 months so it may be worth looking at investment properties outside capital cities.
Of course, there is no way of knowing if and by how much eligible lenders will cut rates on investment loans but it’s worth watching this space!
If you’re considering buying your first or next investment property and would like to know what your options are, contact the team at Port Adelaide or West Torrens.