Over the past few months, both major and second tier banks have been making changes to their lending policies for investment loans following a review by APRA (The Australian Prudential Regulation Authority) The result has seen Lenders tightening their lending criteria on residential property investments.
So what foes this mean for the Property Investor?
- Potential increases to interest rates for existing variable rate and fixed rate investment loans
- Potential increases to interest rates on interest only home loans
- Changes to borrowing criteria
In order to slow the fast growth of investment lending, changes to borrowing criteria will include:
- Reducing the maximum loan-to-valuation (LVR) ratio on investment property purchases
- Increasing the loading buffers that apply to serviceability assessments (this has the effect of reducing maximum borrowing capacities)
- Changing the qualifying criteria for new investors to receive interest rate discounts
- Requesting additional documentation from borrowers when they apply for new investment loans
- Toughening the lending criteria for non-resident borrowers
- Tightening restrictions around lending to self-managed super funds
However it is not all bad news, as Interest rates increase in the Investment sector, a reduction of the fixed rates on owner occupier loans may occur. The debate remains as to whether the new changes will affect property values, although it does appear that the Sydney and Melbourne markets are starting to slow down. One thing that is certain is that the banks will need to ensure sustainable growth in the home loan investment sector to protect both investors and the home loan market.
Each lender will satisfy the new guidelines differently so a discussion with your Innovatus Finance Broker is worthwhile.
How do I make informed Property Investment decisions?
If you are a new investor, or looking to add to your existing portfolio, making informed decisions is the key. Contact Innovatus Property for further information on how we can work with you to achieve your financial goals through property investment.