Investing in property just got a whole lot harder. Don't panic, just plan ahead.
A new era for property investment lending has begun. The rather serious-sounding Australian Prudential Regulation Authority (APRA) is one government-run banking regulator. It is now putting new restrictions on lenders in an attempt to cool a heated property market, especially in Melbourne and Sydney.
New rules have given the go ahead for banks to increase interest rates for the interest-only loans on which many property investors rely (because they are tax deductible). This is an attempt to provide stability and to reduce risky activity in the housing market. Will it work? Only time will tell! But, for now at least, aspiring investors have to learn to live with this new state of play.
So what are these new rules and what does this mean for potential borrowers, investors and mortgage owners? Let's take a quick look at what the banks are now required to do;
1. Limit new interest-only lending to less than 30% of new loans provided: so there are fewer loans to go around
2. Limit the amount of interest-only loans available for properties with a loan-to-value ratio (LVR) of 80% or above and exert even stronger scrutiny of interest-only loans at LVRs of above 90%: so you may need more of a deposit to start with
3. Manage investment lending to ‘comfortably’ remain below 10% growth: so you may have to wait longer for loans to become available
4. Keep a keen eye on loan serviceability (ie. whether an investor can afford it) and continue to restrain riskier lending: so it may be tougher to get your loan approved
Wayne Byrne, chairman of APRA, warns that the country's financial system is entering into time of heightened risk and says that the measures imposed are the most significant since deregulation in the 1980’s.
Some banks have already chosen to go even further than they have to with these new rules. We are also concerned that the official regulations may get even tougher in the near future and - if they keep progressing in the same fashion - you may not be able to secure an interest-only loan with less than a 20% deposit at all.
Essentially, if you have been thinking of investing in property, don't risk it by waiting too much longer. Time to lock in your interest-only loans for the next few years before the weekly payments go up!
There are good ways around these new rules and We Mortgage Solutions can help you navigate them to find the right investment loan to suit you. We have contacts with over 30 lenders so we can easily find out who has flexibility with their interest-only loans at any given time. We also know which trusted non-bank lenders don't have the same restrictions (you can't just walk up to them, but we can!)
Give our lending specialist Toby a call today on 0401 626 114 or email him at firstname.lastname@example.org for an obligation-free chat about keeping your options open.