A MORTGAGE BROKER CAN HELP YOU NAVIGATE THESE CHANGES. TALK TO LUXE FINANCIAL, YOUR TRUSTED MORTGAGE BROKER FOR WOLLONGONG, THE CENTRAL COAST AND SYDNEY.
Policy changes and interest rate increases by the major banks in the last few weeks is seeing property investors experiencing one of the toughest lending environments in recent times. We are also experiencing a very unique environment – one where the major banks are raising rates while the RBA is reducing them!
Why is this happening?
The Australian Prudential Regulation Authority (APRA) was concerned about the number of people entering the property investment market. Their concerns are primarily around risk for consumers should a rapid or sudden decline in the property market occur.
APRA issued directives to banks with the intended outcome of reducing the amount of investment lending. Ultimately APRA is trying to ease the rapid growth in property prices, particularly in Melbourne and Sydney where property prices are considered to be inflated by many property market analysts.
What are the major changes?
- Interest rate increases on investment property loans. ANZ, CBA, Westpac and Macquarie Bank have all increased variable rates by 27 basis points. NAB raised interest rates on interest-only home loans and line of credit facilities by 29 basis points. This doesn’t just apply to new loans; existing loans are also affected by the rate hike.
- Reducing loan to value ratios (LVR’s) on investment property loans, meaning you require a larger deposit than previously. Most lenders have reduced maximum LVR’s on investment loans to 90% with many such as Westpac reducing it further to 80%.
- Increasing servicing requirements, i.e. changing the way they assess your ability to repay the loan, which effectively reduces how much you can borrow.
- Negative gearing tax benefits no longer acceptable as income and maximum allowable rental returns, which again reduces how much you can borrow.
Many lenders, not just the major banks, have made dramatic changes to lending criteria for property investment in order to meet APRA’s requirements. Some lenders like Bankwest have restricted all lending to an 80% LVR. AMP announced that they will cease ALL new investment property lending. They are also increasing the variable interest rate on all its existing investor property loans by 47 basis points.
We may not have seen the end of interest rate increases. The banks now have to retain billions of dollars that would otherwise have been loaned out to borrowers and they will find a way to increase profits to offset the cost of the new rules. Perhaps they are phasing in the increases slowly? A leading bank analyst has suggested here banks may raise rates by 65 basis points.
What does it mean for you?
If you are a property investor with your current portfolio secured with one of the major banks you have most likely maxed out your borrowing capacity with these lenders and accessing equity to invest further will be difficult.
Your cash-flow may also have taken a hit with a significant increase in loan repayments due to interest rate rises. You will need to ensure you have a buffer or funds set aside to be able to afford any further increases.
Investors who have paid a deposit on off-the-plan apartments may be facing uncertainty as they will find it harder to borrow the remaining funds to complete the purchase. For those who planned to buy in their Self-Managed Super Fund, some banks are now requiring an even bigger deposit for this type of purchase.
Do you have a backup plan? What is the best way forward?
Luxe Financial, your professional mortgage broker servicing Wollongong, Sydney and the Central Coast, can help you out!
It is in this type of lending environment where mortgage brokers are really going to add value to clients and can assist you with putting a plan in place. So talk to us if you are looking to use property investment as a means to build wealth for your future.
Investors need to be looking around for other options. There are many smaller lenders who are not affected by APRA’s recent directives and are very much still open for investment business. Luxe Financial can help borrowers find these lenders.