Banks turn up the heat on invetsment loans

Posted by Meiken Barnes • 14 July 2015 • Tags:

The continued rigorous debate around the property market boom has recently lead to a change of lending guidelines across many of the banks.

Investing image.pngIn essence, the banks are looking to play their part in curbing what many believe to be an “overheated” property market, by reducing their lending ratio’s on investment loans especially in Sydney and Melbourne.

In the last couple of weeks the big banks have reduced their loan to value ratio on investment properties to 90%, with Westpac going a step further by reducing their maximum lend to 80% with using one investment property as security.

These changes will have a direct impact on you and your client’s ability to purchase an investment property, as we see the most significant changes in banks’ lending policies since the GFC.

The regulatory authorities (APRA) are concerned about the imbalance of the banks’ lending portfolios with highly geared investment loans, causing concern especially in the capital cities on the east coast.

Some of the other changes to the bank’s lending policies include:

  • Eliminating some of the rate discount opportunities for investment loans
  • Increasing the assessment barrier for serviceability calculations (increased buffer to ensure borrowers can service the loan should rates rise by say 3%)

APRA is determined to play their role in taking some of the heat of out of the market by flexing their muscle with the lenders to challenge investors and ease the concerns for owner occupied borrowers.

It is anticipated the changes will slow investor activity and therefore allow first home buyers the opportunity to enter the market.

This in turn may well increase the lending competition for owner occupied home owners, as we have already seen one lender announce a home loan product where you can borrow 85% with NO Mortgage Insurance Premiums and some banks offering cash back incentives for refinancing.

In the past, the RBA would have stepped in and increased interest rates to slow down growth. However, as it is mainly fueled by the investors, the Banks approach to clamp down on investor activity in this way is in my opinion, more reasonable to home owners. With the variances in credit policy and interest rates between the Bank’s, it is now the time to seek advice from a reputable Mortgage Broker who can identify the most suitable options for you or your clients.

  • Meiken Barnes in the Principal of intouch Finance Albury - see link