These changes have mostly been in response to a move by the Australian Prudential Regulation (APRA), who warned lenders not to increase investor loans by more than 10 per cent a year. APRA also released figures on June 30th, showing investor housing debt rose by 12.4 per cent in the year to March. As a result, lenders are implementing stricter guidelines in order to slow down investor lending.
According to ANZ Bank economists David Cannington and Felicity Emmett, these new changes could have an effect on the housing market.
“The changes to investor housing lending practices are likely to have a marginal softening impact on housing sales and price growth, and as such will give the Reserve Bank some breathing space to keep rates low to support a broadening of the non-mining recovery beyond housing,” they said.
Although some lenders are making changes to their lending guidelines, they are not necessarily obvious changes. So, we've created a list below of questions you should be asking your lender before applying for a home loan. These will help give you an idea about whether the changes will impact you or not.
Are you stress testing?
When a lender assesses your home loan application, they will do a number of calculations to see whether you would be able to handle the repayments now and if you would be able to handle larger repayments if/when the interest rate increases. These calculations are done not only when you are applying for a new loan for a new property purchase but also when you are refinancing existing loans.
In the past the lender would usually increase the interest rate on the loan you are applying for by one or two percentage points, but would use actual repayments on all other property loans may have.
As a result of the lending guideline changes, the stress test rate has been increased to a minimum of 7.5% which can be over 3% higher than current rates. This increased rate is being applied to both the current loan being applied for as well as any other investment or owner occupied loans the borrower may have.
As the stress test threshold has changed significantly, the best way to find out how this change will affect you is to get the calculations done upfront before you apply for a home loan. Remember, each time you formally apply for a home loan, it will appear as an enquiry on your credit report and each new enquiry could affect your chances of being approved.
Most lenders will be able to go through different calculations with you before you apply for a loan. They can give you an idea about whether you would be approved for a loan based on your current financial situation.
Can you lend above 80% for an investment property?
Some lenders will be capping loan amounts for investment properties at 80 per cent LVR (Loan to value ratio) in an effort to slow down investor lending.
If you wish to borrow more than 80% of the property purchase price, you may need to dig a little deeper or shop around for lenders who have not introduced this cap. This lending change has not been applied across the board and there are still lenders lending higher than 80 per cent.
What interest rate applies to me?
The interest rate that applies to you will depend on a number of variations. One factor is the number of loans you have with the lender. Some lenders who have a large portfolio could see a discount of 0.5 to 0.75 per cent, however the new lending guidelines have changed this. Some lenders will now stop offering discounts to new property investment loans.
So no matter how big your property portfolio is, you cannot assume you will receive a discount. When shopping around for a home loan, one of the first questions you should ask a lender is 'what interest rate applies to me?' You may find that even if a lender does not offer a discount for investment loans, you may be able to get another deal that is just as good.
Before you move ahead to purchase an investment property, make enquiries with different lenders and get a proper pre-approval in place prior to making an offer on a property. This is the best way to see if the changes will affect you.
At State Custodians, we work hard to find solutions for borrowers. If you are an investor and need advice across the board, State Custodians can help. Give our expert Lending Specialist team a call on 13 72 62 or leave your details here and they will contact you.
Anouska Linz is Manager, Online Sales at State Custodians and has over 10 years’ experience in financial services, both in broking and banking. Holding a bachelors degree in accounting, Anouska quickly discovered a love for mortgage lending and assisting people to achieve their home ownership goals. She leads a team of highly experienced lending specialists who are passionate about finding lending solutions which result in real wins for the customer. She is also a massive netball fan.
For more information on our home loans, visit www.statecustodians.com.au or call 13 72 62.