Investment Lending In The Current Environment. Do You Need To Review Your Lender?

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When it comes to working out what investment product is right for you, we do the research to give you the information to make an informed decision. What lending ratio will a lender go to? What is the current variable rate compared to the fixed rates? Is your bank charging you too much interest? Loan Market works with over 30 lenders you know and trust, and takes the leg work out of finding the finance deal that’s right for you.

In December 2014 APRA (Australian Banking regulator) had written to the authorised deposit taking institutions (ADIs) outlining steps it plans to take to reinforce sound residential mortgage lending practices.
APRA had flagged to ADIs that it will be paying particular attention to specific areas of prudential concern. These include:

higher risk mortgage lending — for example, high loan-to-income loans, high loan-to-valuation (LVR) loans, interest-only loans to owner occupiers, and loans with very long terms;
strong growth in lending to property investors — portfolio growth materially above a threshold of 10 per cent will be an important risk indicator for APRA supervisors in considering the need for further action;
loan affordability tests for new borrowers — in APRA’s view, these should incorporate an interest rate buffer of at least 2 per cent above the loan product rate, and a floor lending rate of at least 7 per cent, when assessing borrowers’ ability to service their loans. Good practice would be to maintain a buffer and floor rate comfortably above these levels.

While the changes mentioned above will take some time to filter through the statistics, it will be interesting to see whether they slow the pace of investor lending in the second half of the year.

If they do, clearly no further restrictions will be required. However, if there is no sign of a slowdown, or there is continued acceleration, APRA may have to borrow from the Reserve Bank of New Zealand’s playbook and implement firm, and potentially regional-specific, measures.

What does all this mean to the investor?
– Lenders will not be priced discounting any investment loans in the future.
– Owner Occupied Interest Only payments to be LVR restricted.
– Investment lending LVRs’s will be reducing.
– Banks servicing calculations will be reducing the amount you can borrow.
– Rental income allowance will be reduced and this in turn will further reduce borrowing amounts.
– Lenders will be more post code aware in regards to investment lending.

If APRA seriously considers the NZ Reserve Bank new policy, LVR on investment lending could be reduced to 70%. (This has been ring fenced around Auckland at this stage.)

The lenders are still willing to take on investors – however, on their terms not yours. Also some of the smaller lenders are still lenient, but it’s hard to predict how long that will last.

Maybe it’s time for a loan review. Thinking of refinancing to a lower rate? Let me do the leg work for you. Please drop me a line if you would like to discuss interest rates further and what would suit your current circumstances.

Author: Steve Pram

Email Steve: stephen.pram@loanmarket.com.au

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