In an attempt to curb the high competition of the Australian housing market that locked out many would-be first home buyers, the Australian Prudential Regulation Authority (APRA) in late 2014 signalled its intention to keep a close eye on a suite of concerns, including the levels of residential lending to investors.
APRA’s communications at this time flagged an increased focus on:
High-risk lending
The interest rate buffers used in serviceability assessments
The rate of growth in investment lending
Lenders were strongly encouraged to restrict their investment lending to 10 per cent growth. At this time, AMP realised that they had a loan book with more than 10% investors so for a time, they decided not to write any new investment loans. APRA explained that the aim of the threshold was not to target specific loan types, but to pay more attention to the cause of imbalances in the housing market. Which they believed to be strong growth in investor lending.
After this, the Reserve Bank of Australia stated in its Financial Stability Review that direct risks to financial institutions would increase if high rates of investment lending growth persisted or were to increase further. This prompted the major banks to take action to slow their rates of investment lending. In order to avoid the scrutiny of APRA they mandated lending caps and a potential need to hold increased capital against mortgage risk.
At the time, ANZ Bank announced that they are no longer offering discount interest rates to new property investors who didn’t already have a mortgage over their own home with the bank. Both Commonwealth Bank and National Australia Bank also narrowed discounts applied to new investor borrowers. What this now means for investors:
Since the investment lending growth targets were set, the investment property market is moderating, meaning that investors along with owner occupiers are not paying the astronomical prices they might otherwise have been, particularly across the capitals.
While investment lending is now a more challenging space, it is by no means impossible, and brokers with access to a panel of investor-friendly lenders are well placed to help.
Do you need some investment advice? Call Chris today on 0490 075 039 or send an email to info@chardon.com.au