Back in March – APRA – The Australian Prudential Regulation Authority, the Government authority responsible for all banking regulations, insisted that lenders restrict interest only loans to a maximum of 30 per cent of new residential mortgage loans. This action produced instant repercussions for borrowers. Certain lenders with many investment loans in their pipeline at the time, in some instances, had to delay settlements to avoid breaching the cap, which caused major distress for some borrowers.
Despite the regulations only relating to new loans, most lenders happily raised their rates on all their existing investment loans and have gone on to enjoy larger profits at the expense of property investors. In fact, ASIC questions the legality of this action – read more here. APRA had previously put a 10% cap on growth in investment loans to provide some constraint in the property market and they believe this has helped moderate the growth in property prices. So, what affect has it had on investment loans?
It has become painfully difficult to get investors to service loans as your actual repayments bear little in common with how banks judge your ability to repay. Now, any loan may be tested at a minimum of 7% over 25 years principal and interest repayment – not the current interest only repayment. Some banks will judge your loan repayments on existing amounts plus 20% but then reduce the amount of rent they will accept, sometimes as low as 65%.
Another consideration is anyone nearing retirement may have difficulties refinancing as very few lenders will give you a full 30 year loan term once you are over 55. It can be very problematic rushing into a bank offering a cheap fixed rate for 2 years today, only to find you are suffering a much higher, non-discounted rate after this period and you cannot refinance anywhere due to a change in either lending conditions or your personal circumstances.
So investing, acquiring and keeping more properties requires careful discussion and more planning on future possibilities than ever before. Another great reason to do your loans with an experienced broker, who understands investing. Please call us to check your rates and see if you are currently in the most appropriate loan.