What do the latest lending restrictions mean for Australian property investors?
By Beth Wallace
Despite the media coverage of a cooling Australian property market and a housing bubble, property investment still appeals to many of us.
However, recent regulatory changes could make it trickier to secure finance.
We asked Bank of Queensland’s General Manager of Lending, Andrew Toone, how the new regulations could impact your chances of securing a property investment loan.
What are the new regulatory changes for property investors?
In March 2017, the Australian Prudential Regulation Authority (APRA) wrote to all authorised deposit-taking institutions (ADIs) advising they must limit interest-only lending to 30 per cent of all new residential mortgage loans. Within that, they must also place strict internal limits on the volume of interest-only lending at loan-to-value ratios (LVRs) above 80 per cent.
In addition, APRA reiterated that ADIs should continue to limit investor lending below the previously advised benchmark of 10 per cent growth.
Why have the new regulations been introduced?
Essentially, APRA is concerned by rising house prices – notably in Sydney and Melbourne – and households overstretching themselves financially as a result. Given house price increases in these areas have been materially outstripping wage growth in recent years, it’s concerned that a rise in interest rates and unemployment could lead to a significant increase in mortgage defaults.
Will these changes impact the way banks view investor loans?
Banks will be conscious that the new regulations will limit the amount of new loans they can write for both property investors and owner-occupiers. These caps mean if you are seeking an interest-only loan for property investment, the bank(s) you approach have two regulatory ceilings they will need to operate in.
If you are an interest-only candidate, be aware that the banks will have a limited tranche of loans they can provide. Banks are still open for such business and they will all be keen to optimise the loans they write, provided they remain within the regulations.
To increase your chances of securing a property investment loan in the current environment (and at an optimal rate), it is important to position yourself as attractively as possible.
What can property investors do to make themselves attractive to the banks?
You want to do all you can to ensure that you are exactly the type of investor the bank is looking for. At Bank of Queensland, this means customers that want a strong relationship with the bank – bringing not just their property investment loan but all their banking, including a main transaction account and credit card.
If you want to secure an investment loan and plan to bring your owner-occupier loan as well, this immediately sets you apart from other potential customers only looking to secure a property investment loan. If your owner-occupier loan is principal and interest, this helps the denominator of our ‘30 per cent of settlements’ interest-only calculation, which enables us to write more interest-only loans (including yours) within the cap.
If you are just bringing a property investment loan, then a principal-and-interest loan is more attractive than interest only, as it has less regulatory restrictions on it. Equally, if you are able to pay a sizeable deposit on the property to reduce the LVR, this makes you more attractive.
CPA Australia and Bank of Queensland held their first-time property investment seminars in Sydney, Brisbane and Melbourne in August 2017. Visit www.boq.com.au/cpa/ for more information on investor rates exclusively for CPA Australia members.