A game changer for property investors – banks crack down on lending

I warned about it late last year – macroprudential controls would be brought in to limit investor lending!

Well…there have been some significant policy changes announced by some banks in the last few days that will be a game changer for some property investors.clock time calendar

These come almost six months after the Australian Prudential Regulation Authority announced a major overhaul to strong investor lending which has continued to ignite house prices, particular in Sydney and Melbourne.

Back in December last year A.P.R.A told the banks it would take steps to reinforce sound mortgage lending, saying that one of its “specific areas of prudential concern” was lenders growing their investor portfolios by more than 10% per annum.

Now the latest Australian Bureau of Statistics’ housing data shows in March $13 billion of investor loans was written — an increase of 6.4 per cent, with some banks aggressively growing their investment lending portfolio.

This may be why over the last few weeks a number of lending changes have been rolling out, with a swag of announcements coming in the last few days as lenders now take steps to reduce investor lending to satisfy the regulators.

Of course, like any change, there will be winners and there will be losers.

What are these changes?

We already know that lending policies vary between banks, but it looks like those lenders who have been aggressively chasing property investor business are pulling back a little.

Here are some of the changes announced:

  • Higher interest rates for investors as most lenders will no longer discount the interest rate applying to investment borrowings
  • Some lenders are starting to remove their Interest only loans for new investor borrowers, instead offering only Principal and Interest options.
  • Some lenders (including AMP) have changed the way they assess the way you can service your loans and rather than than using ‘current” interest rates to check serviceability, they will use a benchmark rate of 7.5% (currently) on a P&I basisloan
  • Bankwest will lend a maximum of 80% LVR for “any” type of investment lending (this includes property and shares)
  • Macquarie will lend a maximum of 90% LVR inclusive of LMI, therefore base LVR will be ~87%
  • AMP Bank will no longer include 100% of rental income for servicing purposes – now only using 80%.
  • Higher interest rates for investment borrowings as most lenders will no longer discount the interest rate applying to investment borrowings
  • NAB and ANZ are no longer lending to buy residential property in Self Managed Superannuation Funds

How will this affect you?

To summarise, investors will face:

  • Lower LVR’s for investment lending
  • Reduced borrowing capacity as servicing requirements are stricter
  • Higher interest rates

If you’re an established property investor your borrowing capacity may be reduced as banks assess you serviceability and current debt level differently. And you can no longer rely on growing your portfolio using a high Loan to Value Rations

If you’re a beginning investor you’ll need to find a larger deposit – either in savings or as equity in your home which can be released for investment purposes.

And if you’re currently in the market for an investment property – it’s possible that even if you have a pre approval in place it may not be honoured if you purchase a property, so please check with your bank or finance broker.

It will be interesting to see how our property markets are impacted by these changes – I think the heat will come out of the Sydney and Melbourne markets.

In my opinion these changes are for the better.  Home buyers and investors with a good deposit and the earnings to service heir loans should have nothing to fear from these changes.

However when close to 50% of all properties are being bought by investors the markets are unbalanced and these moves are positive for the long term sustainability of our property markets.

And these changes will keep some highly leveraged investors out of the market and this may well protect them from getting burned.

Watch this space – there will be more announcements coming over the next weeks.

By the way if you’re looking for independent property investment advice to help you reach your goals, no one can help you quite like the independent property investment strategists at Metropole.

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

'A game changer for property investors – banks crack down on lending' have 12 comments

  1. May 22, 2015 @ 6:30 am Eugenie

    Great article, thank you very much. interesting that this hasn’t featured prominently in the mainstream media!


    • May 22, 2015 @ 7:01 am Michael Yardney

      Thanks Eugenie
      Yes, I was also surprised not to read more about it elsewhere, but I’m sure it will start cropping up in the news soon


  2. May 22, 2015 @ 10:44 am Peter

    Serious property investors have another obstacle to overcome aside from the subject matter raised in this article. This relates to having true and accurate property valuations completed as part of the loan approval process. Recent experiences indicates that valuers are significantly undervaluing properties by as much as 20-30%. In my opinion obtaining finance in the current climate will be heavily predicated by this rather than new measures that APRA have enforced on lenders.


    • May 22, 2015 @ 10:53 am Michael Yardney

      You’re right Peter
      Valuers seem to be very conservative for equity release valuations


    • May 22, 2015 @ 11:49 am George

      Dear Peter. Current property prices are totally unrealistic and cannot be sustained. Indeed I could easily argue that they are much than 30% over “fair vale” and primed for a significant correction. The recent actions taken by the banks to protect thier loan portfolios point to this scenario. Property valuers must take a much more responsible approach which protects both the bank and the borrower in the situation that an investor is forced to sell quickly under duress. And that could occur when interest rates rise and property prices fall AND as other investors are caught in the same situation so compounding the problem. It is important to understand the role of bank property valuations and it is not to maximise the borrowings of an investor!


  3. May 22, 2015 @ 12:04 pm George

    This is a good start. However there are always ways to get around some of these restrictions and the higher interest rates on investment loans. And that is to apply for a HOME loan instead. This approach would certainly suit first and second time investors who are not heavily leveraged. I have successfully done this in the past myself.
    However we stil need Joe Hockey to realise the positive effect on property valuations and on the federal budget deficit by removing negative gearing. Only then will property prices return back to realistic and sustainable values again.
    And NO, rents will NOT increase as the REIA tries to falsely argue. Rents are dictated by supply and demand dynamics. Not by landlords trying to recover increased costs.There are so many MORE investment properties in the market today as a result of this investor driven property boom that there will be downward pressure on rents for at least the next 2 to 3 years. Even M.Y. has posted articles to support this scenario.


  4. May 22, 2015 @ 12:46 pm Chintu


    I purchased my off-the-plan property last year, and looking to settle in sometime at the end of this year. Will I be affected by the new lending conditions? In other words, will this apply to only new properties bought now (after the new lending conditions are implemented) that bring about new loan applications?

    Regards Chintu


  5. May 22, 2015 @ 6:44 pm Andrew

    Again the Banks rule, investors penalised …………


  6. May 24, 2015 @ 5:12 pm Michael

    I love the way its always the investors fault. The boom is not all over the country it is mainly Sydney and Melbourne. The reason is as alway supply and demand. While ever demand is greater then supply there will always be higher prices and rents. While ever there is money to be made an investor will always be there. Removing negative gearing will only have very little effect if demand is still high. If supply increases you will see investors leave the market as profits will decrease.


    • May 24, 2015 @ 5:20 pm Michael Yardney

      You’re right Michael – the there is no real property boom other than in Sydney and it’s not just invetsors.
      However APRA is concerned that some of the banks are lending too much to investors – they’re not worried about the investors -they’re worried about the banks’ concentration risk & security


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