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How the new changes to property investment lending will affect you

New conditions applying to Australian property investment borrowing have been recently introduced, to try and cool the market, particularly in Melbourne and Sydney. House prices have surged 20% in Sydney and 10% in Melbourne over the last 12 months (July 2014 – July 2015).

Borrowing conditions have been tightened with the intention of lowering risks for investors, and also exposure for the banks, in the event of a market correction. It’s also hoped that the measures will result in more properties being available at affordable prices for first home buyers.

These changes were instigated by the Australian Prudential Regulation Authority (APRA), requesting that the major banks tighten conditions for investor lending.

In response, leading lenders (CBA, Macquarie, NAB, AMP and ANZ ) have responded with a range of tactics. Each particular lender has implemented different requirements for investment lending.

For example some lenders now require a higher minimum deposit, or have increased rates, or have removed discounts for new investors.

A summary of the big 4 banks responses is below.

 

COMMONWEALTH  

  • Established a loan to valuation cap of 80%. i.E. Equity on a million dollar investment must be at least $200,000, to qualify for an $800,000 loan.

  • Reduced its rates of discounts for new investors

  • Removed its $1000 rebate for new investors 

ANZ

  • Removed its interest rate discount for new property investors, unless they are owner-occupiers.

NAB

  • Reduced its rate discount for new investors

  • Stopped providing investment lending to self-managed super funds

WESTPAC

  • Reduced its rate discount for new investors

  • Introduced more strict loan criteria for its ‘nonresident’ home lending

  • Reduced its loan to valuation cap from 95% to 80%.

  • Their Investors must be able to service their loans at higher than 7% (a 2% buffer), this will eliminate some from the market and require others to aim a little lower with their borrowing. 

The International Credit Ratings agency Moody’s has stated the changes are a good idea because they reduce bank exposure to high-risk, leveraged borrowers. 

AFG’s June Quarter (2015) figures reveal the proportion of investor loans in NSW, which have been at around 50% of its lending over the last year, dropped to 42% over that 3 month quarter.

Managing Director of National Mortgage Brokers (NMB), Gerard Foley, claims first-time investors with less cash flow and equity to satisfy the banks' new lending rules will be the people affected the most.

It is hoped the winners in this will be first home buyers. Because some investors will hold back there should be increased opportunities for the first home buyers to acquire a property. So demand will be bolstered in that segment.

It is thought a flow-on effect may be to adversely effect some pockets of the market that are currently popular with multiple-property investors, for example the inner city apartment market or new outer suburban greenfield estates. Some kind of correction in prices in these categories could occur.
However, we believe the new changes will have no adverse effect, if any, on prices in the broader housing market.

SAW can assist you in understanding the pros and cons of the new changes or by directing you to other avenues of investment lending. If you’d like to know more then contact us today.

Posted: 27/08/2015 1:21:15 PM
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