There’s been a lot of recent changes in the world of property financing
Girl sitting on a tree stump looking at the sunset in Canberra

The banking world has been shaken up

The banking world has been shaken up in the last few months due to the Australian Prudential Regulation Authority (APRA) aiming to slow down the uptake of investment property lending. I thought I’d provide a quick update on the changes that have occurred so far.

Borrowing capacity changes

Most lenders, including the big 4, have changed the way they calculate max borrowing. Most are now adding additional buffers to repayments on loans you have with other banks. So for instance, a $400k interest only loan with a 4.5% interest rate has repayments of $1500 per month. However – some banks will now apply a buffer rate of 7.4% and principal and interest repayments to that loan which almost doubles the actual repayments! This has a dramatic effect on borrowing capacity – particularly for investors with multiple loans.
The good news is that not all lenders have adopted this approach. While most have changed their calculators – some haven’t been as extreme as the example above. There are also some smaller lenders that continue to use reasonably generous calculators for investors.

Equity releases

Large equity releases are becoming more difficult – and equity releases above 80% of a properties value are becoming extremely difficult. Some lenders won’t allow equity releases for investment purposes at all now.

For those investors wanting to release equity – it’s still possible, it’s just becoming more important to select the right lender – and presenting it in a way that satisfies their policy and your requirements.

Larger deposits for investment loans

Some banks now require a 20% deposit for investment properties – with the Westpac group being the largest lender to introduce such a radical change (although they’ll overlook this requirement if you also have an owner occupied loan with them). ING, Bankwest and Heritage have also increased the minimum deposit required for an investment loan to 20% of the property’s value.

Other lenders who traditionally required a smaller deposit have moved towards lending a maximum of 90% of the property’s value inclusive of the Lenders Mortgage Insurance (LMI) premium.

What does this mean in a practical sense? The days of 95% investment loans are probably behind us. In reality – the minimum contribution for an investment loan these days is a 12% deposit (so you borrow 88% of the property’s value and have the LMI placed on top) and allow another 5% to cover costs such as stamp duty, legal fees, etc.

Higher interest rates for investment loans

A lot of lenders have introduced higher rates for existing and new investment loans. It’s generally been a 27 bps increase across the board – with AMP being the exception and increasing their variable investment loans by a whopping 47 bps.

There are some lenders that haven’t increased rates for investment loans yet (second and third tier lenders) – but it’s probably only a matter of time before they do.

Exiting investment lending

We’ve seen one lender exit the investment space altogether. In an effort to rebalance their book – AMP have pulled out of investment lending until further notice.

No more “discretionary” discounts for investment loans

This was one of the first changes. Most lenders will no longer accept “discretionary” discounting on investment loans. In the past – we could ask the bank to shave a further 0.05 to 0.30 off their advertised rate (depending on the loan amount and clients deposit). This was known as a “discretionary” discount off the advertised rate. It’s no longer available for investment loans with most lenders.

Owner occupied purchases

This segment of the market has it good. Banks are pushing hard for owner occupied loans – and incentives are in place such as low interest rates, cash rebates of up to $2000 and no LMI on 85% loans.

All in all – APRA’s influence is working and the banks are changing the way they do business. However – it’s not the end of the world for property investors. As they say, with change comes opportunity.



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The information herein is not intended as investment, financial, legal, taxation, building, development or any other advice and must not be relied upon as such. You should obtain independent professional advice and make further independent enquiries before making financial, legal, taxation, building, development or investment decisions.

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