August 03, 2015
In the recent months, many of Australia's lenders have made some changes to their lending policies.
Even though most of the policy changes are targeted towards investors, there have been some general changes which will apply to all buyers.
These policy 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 will these changes mean and how will they affect you?
Well, most of these changes work to limit a potential buyer's borrowing capacity.
For example, if we look at increased floor rates - some lenders considerably lifted the floor rates they use when determining whether or not you can service your loan. Even though your mortgage interest rate may be just 4.5%, most lenders have a floor rate of 7% or more. The lenders use this rate as a benchmark to check and see if you can easily make your mortgage repayments if interest rates were 7% or more. This is to ensure you won't default on your loan if interest rates increased.
Some borrowers may find it difficult to prove they can service their loan at a higher floor rate, so their borrowing capacity is reduced as a result.
While some owner-occupiers may be affected by some of these lending changes, there are a lot more policy changes that have been implemented to only impact investors.
There is one change in particular that I thought is worth mentioning.
Some of Australia's lenders have lowered their maximum loan-to-value ratio (LVR) to 80% for investors, which could negatively affect many investors, particularly those who are looking to purchase off the plan properties.
Investors in the process of purchasing off the plan properties may find that even though they received pre-approval from their lender when they started the process, their lender has changed their lending policy and so will no longer be able to approve the loan because they have lowered their maximum LVR.
While this change won't affect all investors purchasing off the plan, if you are currently going through this process, I would recommend speaking to your lender or mortgage broker to see if your home loan will be impacted.
With so many lenders making so many policy changes, and each lender differing, it's impossible to offer a generic statement about how all buyers and/or investors will be impacted. The only certainty is that now is the time to seek expert advice.
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If you want more information about these recent changes and how they may impact your investment plans, give me a call today on (08) 8178 0700.
Charlotte Gray, Loans Consultant
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