WHAT APRA’S 2017 REGULATORY CHANGES SPELL FOR PROPERTY INVESTORS
In the beginning of this year, the Australian Prudential Regulation Authority (APRA) announced their new additions to residential mortgage lending regulation. These changes affect all lenders in the industry and have the potential to affect all current and future property investment loans.
The APRA’s focus is to reduce interest-only lending to just 30% of all new residential lending.
With this goal in mind, lenders have been required by the APRA to. . .
- reduce the volume of interest-only lending at loan-to-value ratios (LVR) above 80%.
- restrict the amount of interest-only lending at a LVR above 90%.
- remain below the benchmark of 10% growth.
- continue to restrain lending growth in high-risk segments of the portfolio, including high loan-to-income loans, high LVR loans, and loans for long terms.
The new regulatory changes have been made to curb investor borrowing, which makes your job as a property investor a little more difficult.
However, with a little insider’s information and some help from an experienced broker, the smart property investor can find their way through this changing market!
Why these changes have happened
These new regulations are a continuation of the APRA’s response to rising housing prices, rising levels of household debt, as well as slow income growth and radically low interest rates.
This all makes it very difficult for ‘non-investors’ such as families and first-time home buyers to find an affordable housing option in markets like Melbourne and Sydney, where there is a high demand from property investors.
So, what does that all mean for YOU?
As you may have guessed, banks and other lenders have modified their lending requirements for investor lending in response to these new requirements. These changes can potentially make it more difficult for both experienced and new property investors to secure an investment loan.
Now, let’s break it down further and show what you can expect and how you can deal with these changes.
If you’re a current investor. . .
Unless you currently enjoy a fixed-rate on your investment loan, your interest rates will probably increase slightly in accordance to the APRA’s regulations on lenders.
If you want to add to your portfolio, you can expect stricter serviceability requirements. However, if you have good equity and strong incomes, lenders will still provide you finance.
If you want to release equity or refinance, you might find yourself in a bit tricker situation.
While it’s true that interest-only rates are still around 4.5–5% per annum, some lenders will want to assess your ability to service loans at higher interest rates with principal and interest repayments.
This can make it very difficult to release equity or refinance, especially without the help of a skilled broker.
If you’re a new investor. . .
As you may have guessed, these new requirements mean that there are more hoops to jump through before you can start borrowing as a property investor. But don’t give up!
Here are just a few things to remember:
With most lenders tightening their requirements, there will be more scrutiny on your ability to repay your loan.
More lenders are standardising and increasing benchmarks when assessing loan affordability. That means that your borrowing capacity may be reduced.
Future proofing your loan
Instead of assessing your ability to meet interest-only repayments, lenders are now likely to assess your ability to meet both interest and principle repayments.
They are also more likely to figure in much higher interest rates.
Discounting rental income
Often property portfolios rely on rental income to drive them forward. Many lenders are reducing the amount they will consider lending when assessing your ability to repay the loan.
Many lenders will only consider 80% or less of rental income. Others have removed or restricted negative gearing concessions from their calculations completely.
Location and property type
Property types, such as apartments and unit developments, may be restricted by some lenders, being regarded as too risky to take on.
Along with property type restrictions, some lenders may reduce their investment lending in some postcodes.
Interest rate rises
Unfortunately, these changes also mean that most lenders have already increased their investment loan to rates higher than standard home loans.
And any special offers or discounted rates for property investors have disappeared too.
A hopeful note. . .
APRA’s measures are designed to restrain housing prices by tightening investment lending. They will keep evolving as Australian housing market conditions change.
As you’ve just read, securing an investment home loan may be challenging. However, if you meet the stringent lending requirements, there is still opportunity to be found.
Having a great mortgage broker who knows every detail of the APRA regulatory changes is essential to success in this market.
Call Osinski Finance at 0432 570 099 for a free, no-obligation chat about your investment options!