Changes to property investor lending

In 2015 we saw a significant change within our banks, as the interest rates on investor loans increased despite the Reserve Bank’s cash rate remaining relatively stable throughout the year.

Let’s look at why this change came about. For every loan out there, the banks need to hold a percentage of “risk capital” - usually around 10-14 per cent of the total loan value for a standard house. The government wanted that number to be raised to 25% and the banks responded by increasing investor loan interest rates in order to raise more revenue, in addition to
substantial capital raising via the sharemarket.

Before these rate rises, investor loans were generally in line with interest rates on residential loans - meaning investors could get the same deals as owner occupiers. Since these changes, most investor loans saw an increase of up to 0.75%.

So, what can investors do to help minimise the impact of these interest rate rises?

● Each bank raised their investment lending rate based on
how much capital they needed to raise in order to meet the specified APRA
requirements by 1st July 2016. An investor that is with a bank that raised
their rates the most, could look at refinancing to another lender with a lower
interest rate.

● If you’re an investor that owns an owner-occupied
property, you could investigate lenders that provide options to link your loans
which could lead to a better deal on your investment.

● No matter how experienced investors are, they should
make sure that their investment portfolio is well structured.

The first step in making sure you’re on the right investment path is to talk to the experts. Your accountant, a depreciation specialist, and of course, your mortgage broker can all help you make the most out of your investment properties.

For more information, call Trevor Taylor on 0429 022344