While the Reserve Bank has dropped interest rates, APRA (Australian Prudential Regulation Authority) is trying to cool Sydney’s housing market by scrutinizing banks’ lending policies for investment purposes. This has led to many lending policy changes by the major four banks in the last few weeks, specifically in regards to investment lending, including changes to the LVR (Loan to Valuation Ratio), SMSF (Self-Managed Super Fund) lending and types of acceptable income.
So what has changed?
As you may know, lending policies vary between banks, but it now looks like the banks that have been particularly interested in property investor business are pulling back.
Some of the changes include:
- Higher interest rates for investment borrowings. It seems most lenders will no longer discount the interest rate applied to investment borrowing.
- Some lenders will now use an assessable interest rate of 7.5% (currently) on a P&I basis, to service loans, rather than using ‘current’ interest rates.
- NAB and ANZ are no longer lending to buy residential property in SMSFs.
- AMP will now use 80% of rental income for servicing purposes – previously used 100%.
- Macquarie will now lend a maximum of 90% LVR (inclusive of LMI) and Bankwest a maximum of 80%.
And how will this affect you, as an investor?
- Higher interest rates
- Lower LVRs for investment lending
- Reduced borrowing capacity due to stricter servicing requirements
If you are buying your first investment property you will need to find a larger deposit, either in savings or as equity.
If you are growing your portfolio, it is no longer possible to rely so heavily on using a high LVR. With the banks assessing serviceability and current debt levels differently, borrowing capacity may reduce.
These changes will no doubt have knock on affects in the property market, but are not necessarily all doom and gloom. If you have a good deposit or equity availability and earnings to service a loan, the property market is still one of the safest asset classes to invest in.
Whether you are starting up with your first investment property or growing your portfolio, at Calla Property we would love to help you formulate your investment strategy or review your existing strategy.
We are independent investment property specialists here to help you by offering an end to end service in minimising the risk in property investment. Regardless of the current lending policy changes, we believe property investment is a great way to reach your financial goals and retire well. We look at a multitude of factors that influence property investment, such as infrastructure, population movement, reputation, design and growth to pinpoint the best areas for investment.
If you have been hesitating, stall no longer. Now is the time to lock in your investment before the banks make further changes.