Recently, I’ve encountered many home buyers keen to understand changes to the regulation of home loans for investment properties, something which quickly became more topical when
major banks started increasing the pricing of their investment loans.
The Australian Prudential Regulatory Authority (APRA) regulates all Authorised Deposit-Taking Institutions in Australia, including building societies, credit unions and banks. APRA has provided ‘guidance’ to all lenders, big and small, to implement what many are calling a ‘speed limit’ of 10% on the growth of their investment home loan portfolio.
This means that all financial institutions regulated by APRA will need to make sure the portion of their home loan portfolio made up of investment loans does not grow any more than 10% each year. In response we’re seeing lenders change what they offer to investors in an effort to effectively manage the volume of investment home lending they provide.
Where investors may once have received discounted fees and/or rates on their loan, they may now experience a higher rate or fee than an owner occupier. Some home lenders are also increasing the size of the deposit that investors will need to take a loan, so investors can only borrow up to 80% of the value of the property, not up to 95% as has been practiced in the past.
As well as the investment loan ‘speed limit’, APRA has also tightened rules around the amount of capital the major banks and Macquarie Bank must hold against their home loan portfolios, in response to recommendations from the Australian Government’s Financial System Inquiry which was finalised in late 2014.
The major banks have already announced their capital raising plans to comply with the new requirements from APRA which are effective from 1 July 2016.
Looking ahead, customers may find that the major banks further increase lending rates or decrease deposit rates to increase profitability, assisting them in maintaining their return on an enlarged capital base.
It’s also important to note that APRA’s guidance only relates to new investment home loans. Repricing their existing investment home loan portfolio could just be an attempt to increase profitability from customers. If your bank has repriced your existing investment home loan, it may be worth talking to another lender in case you could get a better deal.
So if you’re in the market for an investment property, have a conversation with your local lender about the options available to you and how your lender is responding to these and other market influences. For more information visit: www.newcastlepermanent.com.au