Australia’s lending landscape has been much the same since the inception of banking in our country, with the major four pillars soaring ever skywards on the back of increasing profits, as smaller lenders scrounge for the leftovers in their wake.
But times have changed significantly in the aftermath of the 2008 GFC. And now, for the first time in this country’s banking history, regulators have introduced macroprudential policy to rein in the type of rogue credit practices that did such irreparable damage in the US last decade.
With the Reserve Bank caught between an interest rate rock and a hard place, APRA has noted the growing incidence of investor related borrowing and warned the four main offenders that they’re at risk of creating a worrying imbalance in their mortgage books.
The Australian Prudential and Regulatory Authority have undeniably caught the Big 4’s attention, with the CBA, NAB, ANZ and Commonwealth all decisively withdrawing special rate offers and enticements that could be seen to favour property investors, in immediate response.
Industry experts expect capital allocated specifically for investment related borrowing to decrease significantly and swiftly, as more stringent serviceability requirements are applied to investor mortgage applications.
Let the battle begin
What’s interesting about all of this is that non-bank lenders are not necessarily subjected to the same watchful regulatory gaze as the majors.
Even though smaller lenders will no doubt continue to tread carefully, all too aware of the majors’ recent missteps, they’d be crazy not to seize the current opportunity to win a larger share of Australia’s lucrative mortgage business.
Five non-bank lenders, whose operations are not strictly under APRA regulation, have come out all guns blazing according to mortgage comparison site Mozo, with highly competitive variable rates of between 3.98% and 4.09%.
These offers are well under the average 4.69% available from the Big 4 and apply to both owner-occupier and investor loans, with the lowest offer of 3.98% from Homestar available on mortgages with a maximum LVR of 95%.
“Non bank lenders are likely to reap the rewards of investors being turned away by the big banks,” says Mozo home loan expert, Steve Jovcevski.
He says investors would do well to consider options outside of the Big 4 at this fork in the road for the financial services industry, where they might stand a better chance to secure the capital required for their next acquisition.
This is particularly sound advice for investors who’ve been caught with their pants down, as APRA somewhat suddenly apply the brakes to slow down an overly enthusiastic banking sector.
“Some investors are having applications rejected, resulting in a flurry of panicked refinancers flooding the market, especially those settling on properties as early as this week,” says Jovcevski.
Could non-bank lenders be the proverbial ‘white knight’ for buyers who have found themselves in the awkward position of having contractually committed to a purchase that a big bank is refusing to fund?
Off the plan problems
Some commentators suggest that off the plan investors will be the most directly and adversely affected by this latest tightening of investment standards.
Fears regarding an apartment oversupply in the Melbourne CBD are being exacerbated, as hundreds of off the plan buyers run the very real risk of not being able to settle contracts signed over a year ago or more in some instances.
Essentially, reduced LVRs could be problematic as purchasers are forced to either find bigger deposits or default on their contracts with developers.
The resulting big picture scenario could see a glut of stock saturate the market all at once as developers are forced to resell at completion and settlement. Worse case scenario, according to some experts, is a dramatic value drop in the entire, CBD apartment sector.
Consider your serviceability
Serviceability is the buzzword for property investors who want to continue building their bricks and mortar empire in this new financial era for Australia’s banking sector.
Understanding how a more regulated environment will potentially impact your serviceability profile with different lenders, and what your options are beyond the Big 4 is well advised.
If you would like to know more about how to maximise your serviceability ceiling with optimal debt structures and loan products, one of the specialist investment finance advisers here at Trilogy can help.
If you’re feeling a little bit lost in this new financial services sea of stricter lending policy and practice, we can help you navigate the waters. Just click here to connect with us today.