Investment lending is changing
A topic that has been discussed for many, many years is around the purchase of real estate to assist with long term investment goals and over time we have seen real estate as the investment vehicle of choice for many Mum and Dad investors. This is often due to the “bricks and mortar” nature of real estate compared with other investment like equities, commodities or managed funds. Businesses have been built around educating Mum’s and Dad’s on “how to” seminars but we may be seeing regulators step in to slow this part of the market.
The Australian Prudential Regulatory Authority (APRA) have been in long term discussions with Australian Lenders about measures to slow down the demand, and resulting price growth for real estate, particularly in New South Wales. The start of these changes has been released in the last fortnight with one regional based bank reducing its maximum loan on an investment property to an LVR of 80. Up until the change this same lender had an LVR of 95 for the same purchase. This is just one example of the changing landscape that is investment lending.
We are also now hearing that APRA is having discussions with specific lenders whom they feel have too much exposure to investors and not enough of their loan portfolio’s having owner occupied mortgages. These lenders have started to reduce the discounts they are offering to investors. For example, our office recently submitted a pricing request to a Big 4 lender. The splits were
- $600,000 of owner occupied loan
- $1,600,000 of investment loans
We were offered a discount off the standard variable rate for the life of the loan on the owner occupied loan of double what we were offered for the investment debt. This is another great example that the appetite for investment lending is slowing based on pressures from APRA.
We have also seen the introduction of further taxes applied to overseas buyers investing in NSW real estate in the hope to drive them away from the NSW property market.
Other changes being discussed by many lenders include the rental income from investment properties no longer being available for servicing purposes, the removal of negative gearing calculations to assist in servicing calculations and higher servicing margins being applied to investment loans compared with owner occupied debt.
We do not know where these changes will finish and if they will have the desired impact. APRA does work closely with the Reserve Bank but the Reserve Bank is still trying to stimulate the economy so there are still talks that a further cash rate reduction will take place later this year which works against what APRA is trying to achieve by slowing the investment market. Time will confirm where these changes end and what impact they will have but for now we are watching the investor lending space very closely as daily updates from policy makers and lenders are released.