Investment loan changes
Over the past 18 months or so the Australian Prudential Regulation Authority (APRA) has undertaken certain initiatives to slow down investment in residential properties. As most investors require finance to purchase investment properties, APRA's initiatives have been directed at lenders. The impact on borrowers can be very significant.
Initially, APRA introduced a limitation of 10% on lenders growth in investment finance. To ensure this limit was not exceeded lenders increased their interest rates on investment finance. Initially demand for residential investment finance slowed however that was short lived. With demand increasing and lenders needing to stay within APRA's limits lenders needed to undertake further initiatives to limit growth. These initiatives include increasing interest rate on interest only loans, and reducing the amount they will lend against a particular property (i.e. the lender may have lent up to 90% of the investment properties value but will now only lend up to 80%).
Even though the above changes to investment finance have been introduced, they have not reduced the demand for property investment to a level that APRA is comfortable with. To further control the growth in residential property investment, APRA have announced but not yet mandated, further requirements. The main one being limited the level of interest only loans being approved. As a result in the past few weeks banks have commenced making changes to their policies in anticipation of APRA formally imposing restrictions to interest only lending by further increasing their interest rates.
With APRA being so concerned with the level of investment in residential properties one thing is for certain. changes to interest rates and lending policies will continue to change. Therefore, we strongly recommend prior to purchasing an investment property you fully understand your borrowing position by speaking to an experienced mortgage broker.