Property investors will soon notice some less than favourable changes to their cashflow and capacity to access capital, as lenders attempt to re-balance their books in line with recent regulatory crackdowns on investment related loans.
Every property investor will be impacted…here’s what you need to know…
In December last year, the Australian Prudential and Regulatory Authority (APRA) advised authorized deposit-taking institutions that investor mortgage portfolio growth “materially above a threshold of ten per cent” would be seen as an “important risk indicator” in considering the need for regulatory action.
Despite their continued threats regarding macroprudential intervention however, APRA’s analysis of banking statistics from May indicated that the magic 10 per cent margin wasn’t being taken as seriously as they’d hoped.
ANZ’s residential property loan book grew at an annualised rate of 12 per cent for the month, with all the majors (aside from Westpac) allowing investor loan activity to rise beyond 10 per cent, along with AMP, Macquarie, ME and Teachers Mutual Bank.
APRA took a hard line approach in response to the data, cautioning that lenders who didn’t adhere to mandated restrictions on investment borrowing at 10% or less of all loan settlements could force the imposition of formal credit sanctions.
Pulling in the investment mortgage purse strings
The effects of APRA’s sterner stance were almost immediate. Prior to May, discretionary loan pricing was readily available to property investors, with competitive deals below carded rates offered pretty much across the board.
These virtually disappeared overnight in a veritable avalanche of changes to property investment mortgage offers.
It began with ANZ contacting brokers to advise they would only extend advertised rates to investor clients, with no further discretionary pricing available. Other lenders quickly followed suit. Then came additional serviceability barriers and the application of loan to value ratio limits.
Since then lending policy revisions have continued, making the acquisition of new property investment mortgages, the settlement of loans on existing contracts and the overall management of cashflow, a lot more challenging for investors.
Here’s what we’re currently seeing:
- ANZ and CBA to apply a RETROSPECTIVE interest rate increase of 0.27% to all investment property related loans from August 10, impacting cashflow for new AND existing customers.
- Negative gearing ‘add backs’ removed by most lenders, impacting serviceability and making it more difficult to obtain an investment loan.
- Bankwest, St George, Advantedge and ING have lowered their Loan to Value ratios on investor related borrowing. Notably, ING have capped their LVR at 80% for NSW and 90% for all other states.
- Additional discretionary pricing pulled back on all investment property loans.
- Stricter serviceability requirements, including:
- Additional proof of expenses – NAB requires statements on non-held facilities.
- Rental income capping among the NAB, St George, CBA and ANZ. Some will work to 80% of rental income, others will only allow 4% of the property‘s value and some consider just 50% of total rent.
- Interest ‘add backs’ removed.
- CBA, Westpac and St George applying additional buffer, loadings and stressors on existing and non-held facilities.
- Fixed rate increases on investment property loans, with the CBA and ANZ already announcing changes.
You need a Plan B (especially OTP purchasers)!
These measures will no doubt add a few potentially problematic hoops for investor mortgage applicants to jump through, in order to obtain capital for future acquisitions.
Worryingly, a large number of investors are currently locked into OTP loan contracts, having arranged finance months before these industry revisions came about.
This has led to questions regarding the fate of many OTP deals at settlement time, particularly as a large number of transactions would be geared at a 90 to 95% LVR, which may no longer be accessible. All OTP investors are advised to discuss alternate financing options with their broker.
While it certainly isn’t the end of the line for those looking to take advantage of our current low rate environment and board the property bandwagon, APRA has undeniably changed the rules of the game.
If you would like some help navigating this new lending landscape, please contact the team here at Trilogy to discuss how these changes might affect you and how you can prepare for what’s to come.
We can review established investment loan portfolios, as well as planned ones, to come up with the best solution for your circumstances in any type of credit climate. Call us on 1300 657 132 to connect with one of our specialist investment mortgage brokers.
Special Trilogy Report
If you would like to know more about the changes currently occurring across all lending institutions for property investment mortgages, don’t miss the next issue of the Trilogy Report, where our mortgage brokers will provide a comprehensive insight from the coalface.