Impacts of APRA changes start to show

Wednesday, 4th Nov 2015
Categories: Market News, Newsletter

residential areaAPRA’s financial lending changes are starting to bite as growth of investor loans has slowed for a second consecutive month.

The country’s banking regulator, the Australian Prudential Regulation Authority (APRA), has been forcing financial institutions to tighten their lending standards.

The changes have been implemented to cool the overheated property markets in Sydney and Melbourne and include the requirement for lenders to cap the growth of investor loans at 10% annually.

These measures seem to be working with the latest data revealing that lenders are heeling to APRA’s demands.

Figures released by APRA show that the rate of growth for investor loans dropped to 10.7% for the month of August.

This is slightly lower from July’s rate, which was recorded at 10.8%, and down from June when investor-loan growth hit 11.1%, which was an 8-year high.

Although the growth rate in August was still above APRA’s desired cap, the changes will take some months for lenders to implement and the growth rate for investor-loans is expected to continue to slow.

Lenders are using a number of different levers to meet APRA’s requirements because there is no single antidote.

These levers include changing loan-to-value ratios, serviceability requirements, interest-rate buffers, negative gearing allowances, rent allowances and rate adjustments, among others.

We’ve recently seen all the big four banks, and some of their smaller competitors, raise their variable rates in response to APRA’s measures.

With interest rates remaining at historical lows, though, it remains a good time for property investors to make their next acquisition.

However, it’s crucial that property buyers seek advice from brokers who specialise in investor loans so they’re properly informed on all the changes.