Lenders continue policy changes following APRA restrictions
Most property investors are aware of APRA’s recent clampdown on lending in the Australian residential mortgage market, however some have been caught unprepared for the implications. What are the actual changes that have been implemented and how do they affect investors?
The Australian Prudential Regulation Authority (APRA) is the national regulator for banks, credit unions, insurance companies and most of the superannuation fund industry. It is largely funded by the industry it regulates.
Essentially, APRA provides guidelines to the banks and other institutions to ensure they are not over-committing themselves. Failure to adhere to these guidelines will result in substantial fines to the institution.
APRA has been closely monitoring residential mortgage lending in recent years due to heightened activity and growth in the Sydney and Melbourne markets, and has imposed restrictions in a bid to cool off some of this activity.
Lenders have been ordered to reduce their mortgage exposure and reign in investment lending growth, with interest-only loans being targeted in particular.
As of March this year, limits were put in place for interest-only loans to amount to no more than 30% of new loans – or roughly 1 in every 3 loans – and rates increasing substantially on this type of loan.
Servicing rates have also changed, which are what the banks use to calculate the repayments on the loan you are applying for, and this is then used to determine how much you can borrow. Currently, banks are using a pre-determined interest rate to calculate your repayments, regardless of your actual rate.
Such substantial changes can have a significant impact to investors, as demonstrated in a recent webinar held by two of our mortgage specialists, Ashleigh and Scott. They uncovered some real-life examples of the effects of these changes, and the advice they’re giving to clients. You can catch the webinar here.