If you are currently a property investor or looking to invest in property in Australia the rules have recently changed. Some of you that already have investment loans will have seen the banks raise the interest rates, outside any rate rise by the Reserve Bank of Australia. There has been pressure from The Australian Prudent Regulation Authority (APRA) which regulate the banks and they have made big changes to how the banks are allowed to lend to investors and the type of lending they want to discourage.
Vesna Poljak from the Sydney Moring Herreld stated “On Friday APRA strengthened macroprudential policies, which govern how much banks can lend, within what it called “an environment of heightened risks”. Investors had feared more aggressive measures, but APRA declined to crunch the existing 10 per cent limit on investor lending growth that was introduced in late 2014.
The regulator has ruled interest-only mortgages can account for no more than 30 per cent of new residential loans to borrowers and tightened the availability of loan-to-value ratios which test the 80 per cent level. That comes after banks allowed interest-only borrowings balloon to nearly 40 per cent of all new loans.”
CLICK HERE for more on why the banks are so accepting of APRA’s loan crack down
What does this mean for the property Investor? It means that banks have added a margin to investor loans – some upwards of .50 basis points, this means a .5 of a percent increases on your investment loan rate as compared to the owner-occupied loans. Also if the Loan to Value ration (LVR) is greater than 80%, most of the major banks are not allowing interest only payments on these loans therefore making the investor make principle and interest payments. Which in many cases reduces the cash flow for the investor.
Now I understand the regulator was trying to take the heat out of the property market in Sydney and Melbourne, where it has been very buoyant, but what about the rest of the country, Queensland, South Australia, Tasmania, Western Australia and Northern Territory? Both Western Australia and NT have had declining markets and are trying for any investment to help with the economy and provide jobs.
What some of these new measures will do is that the struggling Mum and Dad investor trying to get ahead and buy their first investment property and who only have a small deposit are almost priced out of the market. The wealthy investors will be ok as they have large deposits, equity and serviceability and the banks will welcome them with open arms.
What will happen to the Economy? Well with all the investors now having to pay principle and interest loans, this sucks direct surplus cash from the economy that families or couples might have spent on holidays, retail, services, renovations, school or university fees, this is where it effects everyone and jobs are sure to decrease due to the cut back in consumer spending. This is not even taking into consideration the effect is going to have on the building industry and all the jobs that it supports.
So, clearly now is not the right time to invest you would think? Maybe not….. When you start to have a shortage of supply of rental properties, the rental amounts go up, creating a better return on your investment. So for those that are still able to invest, this is a great time to do so! However there is still the oversupply of apartments in the 3 capital cities, Sydney, Melbourne and Brisbane. These need to be taken up by renters, but it will take a couple of years, so I would advise to probably stay away from the inner city apartments in all three capital cities fo a while yet. But the house market and town house market will still be very buoyant and the affordability factor will make a big play, so western Sydney, Geelong and the outer North Suburbs in Melbourne and Brisbane along with the Gold and Sunshine Coasts are going to be very buoyant in the house and land markets and existing homes doing renovations and advance strategy deals.
Getting in now and finding the right finance and strategy are the two most important actions for the property investors in the Australian property market. The people that take action will be the real winners. Help us to help you to take that action and grow your property portfolio now.
Give Chris a call on 0434 449 455 or drop us an EMAIL