July 08, 2015
After the Australian Prudential Regulation Authority (APRA) announced its plan to cool the property market by capping investment lending, banks have toughened their loan policies for investors.
This means that buyers intending to purchase an investment property can no longer access the same deals available to owner-occupiers, leaving many investors unsure of what to do next.
For property investors seeking a loan, it’s important to understand the changes and how they may affect you.
APRA caps residential investment lending growth at 10%
Changes to APRA’s lending standards were first announced late last year, but many of the changes have only really started to come into effect in the past month.
The tighter guidelines are intended to cap residential investment lending growth at 10% for each lender. The decision came at the end of a year of substantial growth in Sydney and Melbourne and it is hoped that the new policy will ease the property markets in these areas.
Many lenders have been slow to react to APRA’s announcement, but June saw a number of the major lenders begin to tighten their policies.
The investment lending changes so far
A number of lenders have now updated their investment lending policies in an attempt to curb the amount of investment loans being handed out.
Some of the changes to investment lending include:
- Cutting discretionary pricing on investment loans.
- Lowering the loan to valuation ratio to 80%, meaning investors now need a 20% deposit to secure a loan.
- Tougher loan serviceability rules on negative gearing, rental and additional investment income. Some lenders are now including only 60–70% of actual rental revenue into the loan’s servicing income.
At this stage Commonwealth Bank, ANZ, Westpac, Bankwest, AMP, St George, Citibank, Advantedge and Suncorp have all updated their investment loans to include one or more of these measures, and it is expected that other lenders will follow suit.
Most of these lenders have also implemented a policy to load all existing debt, which is likely to affect your borrowing capacity.
While this move makes sense in order to slow down the market in Sydney – where house prices are currently up 16.2% from this time last year – the Brisbane market is growing at a much more sustainable rate.
Whether the policy has been successful is yet to be determined, but recent data suggests it is not having the desired effect. In June alone, property prices rose by 2.8% in Sydney and 2.9% in Melbourne, despite banks being tougher on handing out investment loans.
How to find an investment loan
Property investors need to either do their research carefully or let someone else take care of it. Now more than ever it is important to look at lenders other than your own bank, as there are still some good deals around. If you have equity, you may find that you are still able to borrow at a fair rate.
There are some lenders on the Mortgage Choice panel that haven’t yet updated their lending policy and others are remaining flexible with investment loans. I am receiving regular updates about the changes from lenders, which means I can compare the most current data for you to help you find a loan that is still affordable and that will also meet your needs.
Unlike Sydney and Melbourne, the Brisbane market is looking much better for investors. If you are thinking of investing in property, you may be interested in which suburbs recently made RP Data’s list of Brisbane’s cheapest-inner city suburbs.