They've done their job and now they may retreat a little.
Recently APRA our banking regulator has acknowledged the property market has cooled and its strict limits on the rate of lending to property investors are “potentially becoming redundant.”
And that's good news for anyone who's tired to get a loan recently but found the bank's current serviceability criteria are stifling their ability to get more finance.
This comes at a time when the growth in credit throughout the economy at its slowest pace in four years as the number of loans going to investors has slumped and falling house prices reduced loan sizes.
And it now looks like the banks are to be keen to lend to investors again, mostly by dropping interest rates, bringing them closer to owner-occupied lending rates.
Now staring back in 2014 APRA capped lending to investors by forcing the banks into more responsible lending and slowing their growth in lending to property investors.
Appearing before a Senate estimates hearing, Australian Prudential Regulation Authority chairman Wayne Byres said the need to maintain a 10 per cent annual growth limit on investor lending was reducing.
“At the aggregate level, demand seems to have subsidised,”
“So the general dynamics in the market suggest is it potentially becoming redundant, although there are some institutions still growing quite quickly.”
In recent weeks ING, Macquarie Bank and the Bank of Queensland’s Virgin Money have reduced rates on interest-only investment loans to entice new customers.
Bank of Adelaide also cut interest-only rates by up to 0.75%, and Homeloans cut some loans by 0.3%.
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What about those with interest only loans?
However, there is still a looming problem for many investors with interest only loans.
Of course there's nothing new about interest only loans where you pay no principal and just interest for a fixed period.
But in the past they made up less than 20 per cent of the total market, yet between 2014 and 2017 these types of loans swelled and at their peak, around a year ago, 60% of new investment loans and even 20% of new owner-occupier loans were taken out as interest-only.
Though APRA moved to restrict the loans around a year ag0 (March2017), they still remain about 27% of all loans on the books of the major banks.
This caused the Reserve Bank to flag concerns early this year about how investors were going to handle the termination of these loans in the years ahead, as many borrowers will be faced with increased mortgage repayments as their interest only period expires and they have to repay principle plus interest.
And only last week APRA reiterated it has no plans to change its ruling, which restricts banks to keeping interest-only lending at less than 30 per cent of all loans.
“We want to see where it settles,” APRA boss Wayne Byres told a Senate committe.
This means we are now entering an unprecedented period in the lending market.
As always...property investing is a game of finance with some houses thrown in the middle, so it will pay handsomely to have a team of good advisors on your side since there are so many variables at play at present.
It's best to be prepared with a finance strategy that will see you be able to continue your property investing journey.