Investor loans targeted again to cool booming east-coast property markets

Tuesday, 2nd May 2017

Australian property investors are facing a tougher financial landscape with a number of lenders hiking rates and applying increased scrutiny when assessing loans following pressure from the banking regulator, Australian Prudential Regulation Authority (APRA).

APRA’s latest clamp down on the nation’s financial lenders comes after property price growth in Sydney and Melbourne started accelerating again in late 2016 and early 2017.

The new measures are designed to cool property prices after a resurgence in investor activity in these cities, where demand from these buyers has increased over the past year to about 45-50% in Sydney and 35-40% in Melbourne.

To quell activity from investors APRA has ordered banks to:

– Limit interest-only loans to 30% of new residential mortgage lending
– Limit interest-only loans with loan-to-value ratios (LVRs) greater than 80%
– Ensure strong scrutiny and justification of interest-only loans above 90% LVR
– “Comfortably” remain below the 10% growth rate in new investor loans
– Ensure serviceability metrics (interest rate and income buffers) are set at appropriate levels
– Limit higher risk loans, such as high loan-to-income loans, high LVR loan and loan with long terms

Furthermore, almost all banks have hiked rates for various loan products, particularly investment loans including those for principle-and-interest and interest-only loans.

These measures apply across the board for all Australian property investors despite being implemented to target the booming Sydney and Melbourne property markets.

Due to these tougher lending standards, it’s crucial for property investors to engage investment-savvy mortgage brokers to ensure their finance structures are optimised.

This is particularly important for investors who are considering purchasing an investment property in the near term as well as existing property investors to ensure their loans remain suited to their long-term goals.

APRA attempted to rein in the Sydney and Melbourne property markets in 2015 when the regulator ordered banks to increase their serviceability requirements when assessing loan applications.

These measures worked initially but investor activity has since rebounded following two rate cuts from the Reserve Bank of Australia (one in May 2016 and a second in August 2016), which saw the official cash rate drop to 1.5%.

This cheap finance led investors to flock back to the Sydney and Melbourne markets amid continued strong property price growth.