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

Well, it’s happening – macroprudential controls are being brought in to limit investor lending!

In the last few days there have been some significant policy changes announced by some banks that will be a game changer for some property investors.

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, particularly in Sydney and Melbourne.

Back in December last year APRA 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 that, in March, $13 billion of investor loans was written — an increase of 6.4%, 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 (including AMP) have changed the way they assess the way you can service your loans and rather than using ‘current” interest rates to check serviceability, they will use a benchmark rate of 7.5% (currently) on a P&I basis
• 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 LVRs 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 ratio.

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. 

However, in my opinion these changes are for the better.

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.

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

Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.