Mortgage Lenders Update – Investment Property Loans

by Access One

---

13 Aug - 2015 - 12:00 AM

Tags: investment property

---

---

AFG, Australia’s largest mortgage broker group, announced a record-breaking volume of $5.1 billion in mortgages processed for the month of June – up 34.5% on June 2014, and 1.7% on last month.

This is also AFG’s second highest month ever after achieving volume of $5.2 billion in March this year.

Australian house prices continue to grow

Over the past year, Sydney (18.4%) and Melbourne (11.5%) have continued to record the strongest rate of growth, with Brisbane (3.9%) the next best performer at a much lower level. Following on from this Adelaide (3.4%), Hobart (2.5%) and Canberra (1.2%) home values have risen over the year, while Perth (-0.3%) and Darwin (-5.3%) home values are lower than they were in July 2014.

This brings the dollar value growth of Sydney median house values to $133,500 over twelve months.

This amount of growth isn’t able to be sustained in the long term so changes are needed.

Investment property loans tighten as APRA clamps down

The Australian Prudential Regulation Authority (APRA) which oversees banks and most financial institutions was hoping rates would level out a bit in order to slow the property market, but with interest rates still dropping and at record lows this hasn’t happened.

In the middle of last year they flagged that they were concerned about Residential mortgage lending and again in November 2014 APRA intervened with additional regulatory and supervisory tools to address these emerging risks. So they announced to all the ADIs’ (Approved Deposit Taking Institutions) AKA banks & mortgage lenders that they were going to be monitoring 3 areas of concern.

1. High Risk Lending- lending at high loan-to-income ratios, lending at high loan-to-valuation ratios (LVRs), lending on an interest-only basis to owner-occupiers for lengthy periods and lending at very long terms. 
2. Investor lending- Fast or accelerating credit growth can be a key indicator of a build-up in risk, annual investor credit growth materially above a benchmark of 10 per cent will be an important risk indicator.
3. Loan Serviceability assessments- In APRA’s view, prudent serviceability policies should incorporate a serviceability buffer of at least 2 per cent above the loan product rate, with a minimum floor assessment rate of 7 per cent.

How will Investors seeking a loan be affected?

• Most mortgage lenders will restrict and reduce the number of interest-only loans (primarily used by investors).
• Larger deposits required for investment loans e.g. 20%
• Investors will not get the discounts they were offered in the past. (Higher rates for investors)
• Harder to qualify for a loan, some lenders are using an assessment rate of 7.1% to test if an investor can service the loan.

This has left investors purchasing off-the-plan apartments, who typically pay deposits well before they complete exposed. 

Statistics from CoreLogic RP Data reveal there are approximately 90,000 off-the-plan apartments currently under construction that have been sold but not yet settled, and MFAA Chairman and Vow Financial CEO Tim Brown estimates that 20 per cent of their purchasers have only a 10 per cent deposit.

The Big 4 Banks Changes To Investment Property Loans

In response, several lenders have made significant changes to their investment lending policies.

ANZ

• No interest rate discount for new property investors without an ANZ owner-occupier loan

COMMONWEALTH BANK

• 80% loan-to-valuation cap for investor loans (Bankwest)

• Reduced rate discount for new investors

• Removed $1,000 rebate for new investors

• Increased variable rate by 0.27% for new and existing investment loans, including low-doc investment lending, effective 10 August 2015.

NAB

• Reduced rate discount for new investors
• Exited investment lending to self-managed super funds

WESTPAC

• Reduced rate discount for new investors
• Stricter loan criteria for 'non-resident' home lending increases surplus buffer rate from 0.21% to 0.25% for Consumer Mortgages, effective 1 August 2015.

AMP Bank

The Bank released a statement saying it would not be accepting new, or assessing existing, property investor loan applications. The suspension of new investment lending is expected to last until later this year. Existing property investment borrowers with AMP are also being slugged with a 0.47% increase in interest rates.

Back To All Articles