Investment Loans – Where do they stand post-election?
Investment loans have been the subject of much scrutiny over the past 18 months, with regulators implementing major changes in a bid to control artificial inflation of the property market, and protect the Australian economy. Nevertheless, the investor market is continuing to boom and auction clearance rates are once again on the rise, causing speculation that the Australian Regulation Prudential Authority are preparing to step in and tighten things up.
APRA could clamp down even further on the 10 per cent annual growth limit they proposed on bank loans to property investors in December 2014. This led to banks shifting lending towards owner-occupiers whilst simultaneously toughening up their credit policies and pushing up the cost of lending for investors, resulting in a steep decline in investments soon after.
However, 2016 has seen investor loans creep back up. May of this year saw an increase of 5.3% in investment housing commitments, swiftly followed by a 3.2% increase in June. This could be attributed to a number of things, such as investor fears on negative gearing during the lead-up to the federal election, as well as the Reserve Bank of Australia’s May rate cut. The August rate cut was not fully passed on to borrowers, so is unlikely to have the same effect. Still, any further increases may push banks outside of the 10% increase and spur APRA to take action.
In light of this, banks may consider further raising interest rates for investors, and imposing affordability tests to ensure borrowers can cope with the hike. APRA is also paying close attention to the recent surge in mortgages being reclassified from investment to owner-occupier, as concern grows over the possibility that investors may be claiming that loans are for owner-occupied properties in order to avoid paying higher interest rates.
A possible shake-up to negative gearing is also likely to affect borrowing, and could mean investors would no longer be able to offset losses on investment properties against their taxable income for tax breaks. Negative gearing is seen by many to be blocking first time homebuyers from entering the market, and contributing to soaring house prices.
Despite all of this, investors should not be disheartened. No further major changes to investment loans have been confirmed as yet, and there are still great deals available, with loan rates overall at the lowest they have been in decades. As always, it is important to shop around to find the lender offering the right solution for your clients’ circumstances.