The most significant changes to lending in the last 20 years!
Updated: Wednesday, December 12th, 2018
The lending landscape has changed dramatically over the past few months thanks to the country’s banking regulator APRA.
In December last year, the Australian Prudential Regulation Authority [APRA] announced its specific areas of concern, alerting the industry to its increased level of lending supervision and setting out specific expectations to help address housing sector risks.
The areas of concern included high LVR lending, investor lending and borrower serviceability assessments.
While nothing was actually prohibited outright or restricted, APRA made it clear the banks should limit the growth of investor loans to no more than 10% per year.
Since this time, many lenders have implemented changes – most notably adopting limits on interest only lending and placing restrictions on investor LVR limits.
Then just last week APRA told the banks they had to hold more capital against their mortgages as part of their efforts to bring investor lending growth to under 10% pa – this time the banks responded by increasing the rates on all investment loans.
To put this in perspective, not since the 1990’s have banks charged a higher rate for investment property loans compared with owner-occupier home loans!
What does this mean for you?
All four major banks have now announced stricter lending guidelines around investor loans.
What this means is it’s tougher to qualify for an investment loan, you can no longer borrow as much, and you have to pay a higher rate of interest compared with an equivalent owner occupier home loan.
While the initial lender changes were focused on curbing new investment loans, recent changes by the major banks have caused quite a stir amongst their existing customers!
And it’s not hard to see why… In the past few days the NAB, ANZ and CBA announced they are increasing interest rates on not just new but existing customer variable rate investment loans by 0.27%!
Westpac, Australia’s largest lender to landlords, remains the only one of the big four banks not to have increased interest rates for property investors – but not for reasons you might think… It seems Westpac is finding it challenging to distinguish between investors and owner-occupiers in their computer system. The word is it might take Westpac as much as several months to work through system issues to enable it to charge different rates.
They’re not the only bank suffering from technical issues – sources say the NAB is also constrained from charging different rates to investors and owner-occupiers because of the way their systems are configured. Perhaps this may explain why they decided to increase rates [by 0.29%] on both existing investment AND owner occupier interest only mortgages!
Here’s a summary of the major lending changes announced so far;
- Removal of all special offers, rebates and incentives for investment loans
- Increased rates on new variable rate investment loans
- Increased rates on new fixed rate investment loans
- Increased rates on existing variable rate interest only investment loans [includes line of credit loans]
- Increased rates on existing variable rate interest only owner occupier loans [includes line of credit loans]
- 80% LVR cap [down from 95%] on new investment loans
- 80% LVR cap [down from 95%] on new interest only owner occupier loans
- Variable pricing based on LVRs – increased rates on higher LVR owner occupier and investment loans.
- Increased qualifying rates used in assessing serviceability for new loans
- Existing debts now to be assessed at the qualifying rate not the actual existing interest rate
- Bonuses, commissions, allowances and overtime income – only 80% used in assessing serviceability
- Rental income on high value property [>$2mil] – only 60% used in assessing serviceability
- Proof of existing debts and actual repayment amounts now required during lending assessment
- Credit cards or store cards to be assessed at 3% of approved credit limit
Note: Not all lenders have implemented all of these changes.
The good news…
While all Authorised Deposit-taking Institutions [ADIs] are regulated by APRA [you can view a complete list of them here] not all ADIs are as exposed to property investment lending as the big banks.
As a result we have access to a number of lenders who continue to provide unrestricted lending to investors and owner occupiers.
In addition, we also work with a range of non-ADI lenders [not regulated by APRA] who can provide extremely good lending terms and rates for investors.
So while lending has changed in a big way over the past few months it is still possible to get 90-95% LVR interest only investment [and owner occupier] loans at great rates!
What to do…
If you currently have a variable rate investment loan or interest only owner occupier loan there’s a good chance your interest rates are going to be adjusted up!
If this happens please call us – we can review your situation to see if your current lender is still the best lender for you.
As always there are many options in the market place and it’s our job to make sure you get the very best deal for your situation.
If you need any other details or just want to have a chat about your current loans please call us on 08 8451 1500 any time.
Sam & Matt
Adelaide Mortgage Broker +plus more…