There is a lot of noise surrounding investment lending at the moment. If you have investment lending and have heard from your bank that interest rates are increasing our advice to you is “Don’t Panic”. All the banks are following instructions from government agent APRA. We are monitoring all the banks and their changes and will be in touch should we deem it necessary. As always, please call us if you have any concerns. However, if you have moved into a property that was originally purchased as an investment but is now your principle place of residence you should not incur any rate increase. Please contact us immediately if this is your situation.
Background
Briefly, the Federal Government and the Reserve Bank have expressed concerns about a potentially overheated property market, especially in Sydney and Melbourne. APRA is looking to take the heat out of the market by slowing the growth of investment lending.
In its role as regulator of banks and other financial institutions, APRA has issued Guidelines designed to do that, as well as ensuring the ongoing strength of Australian Banks.
Key Changes
APRA has asked banks to cap investment loan growth at 10%. A number of lenders are already at, or even over this limit, so they are under pressure to significantly reduce their investment lending.
The four major banks and Macquarie Bank are also required to increase the capital they hold against mortgages, which tends to increase the cost of lending. It is likely the banks will pass on some of those costs to customers via higher interest rates.
What does this mean for you?
If you have a home loan that includes principal repayments, you may not be affected. Some lenders may even decrease interest rates on owner-occupier loans.
If you have a variable rate investment loan, or an ‘interest only’ variable rate home or investment loan, you may find that your lender increases the interest rate on that loan.
If you are looking at buying an investment property, you are likely to find the lending market more restricted than in the past. This doesn’t mean you won’t be able to find a loan that suits you, just that it may take a little more time.
