INVESTMENT LOAN FUNDING
There are emerging changes that are affecting how Mortgages are being priced where the purpose is for investment funding.
It is always a reflecting moment when history repeats. When this author started in the finance industry 20 or so years ago interest rate pricing for investment purpose borrowing was at a premium to borrowing for domestic purposes. We are here again in 2015 with fears over the pace of investment lending.
We are also seeing reductions in loan to value ratios, meaning investors may require a greater deposit when purchasing investment property.
These changes are in response to the Australian Prudential Regulation Authority (“APRA”) demand that banks reduce the level of housing investor credit growth to below 10 per cent per annum.
So in 2015, and responding to pressure from regulators, banks are scaling down interest rates discounts offered for new property investors in comparison to owner occupied lending.
SUMMARY OF THE CHANGES
Some of the changes are as follows (and we expect more to be announced over the next few weeks).
WHAT IS THE IMPACT ON ME?
- Discretionary Interest rate discounts offered off new investment property lending will be reduced.
- Banks (as Bank West has just introduced) will potentially reduce the level of loan advance against investment property. New Zealand revisited?
- One lender has reacted by removing negative gearing benefits from its serviceability assessment - this will reduce the borrowing capacity of certain investors.
- APRA has indicated it will introduce regulation that require banks to carry more capital against their mortgage books – this will impact the cost of credit in the longer term….
There is no need to panic. Existing investment purpose borrowings arrangements are not affected.
With these changes, we are already seeing aggressive compensatory offers for owner occupied lending, we also anticipate competitive tension as banks compete strongly for “whole of wallet” mortgage coverage by customer.
For more information and to prepare for these changes, contact the My Club First team.
- Article written by David McCleery and courtesy of our supplier MCP Group.
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