Some of you may have heard that APRA has cracked down on investment lending, influencing many lending institutions to review their investment lending policies.
But we imagine for the majority of you, it’s a case of “APRA, who?”.
In short, APRA are making some changes to investment loans, and we thought you would like to know if and how these changes impact you. In this article, we take a look at APRA and what they’re doing to keep borrowing conditions stable for you as an investor.
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the Australian financial services industry. Their role is to regulate the behaviour of lenders, banks, credit unions, building societies, general insurance companies, private health insurance agencies, and the superannuation industry.
APRA plays a critical role in protecting you, and the financial well-being of the Australian community, by upholding standards of trade in the financial industry. Their mission is to establish and enforce standards and practices designed to ensure that under all reasonable circumstances, financial promises made by institutions are met and that our financial industry remains stable, efficient and competitive. As a consumer, APRA’s activities ensure that you have a reliable, fair financial industry and you can go about your day to day transactions and investments with confidence.
In December 2014, APRA wrote to all deposit-taking institutions (such as banks and other lenders) setting out sound lending standards, particularly for investment lending, that included a benchmark for the 10% maximum growth of residential investment mortgages. This occurred because of concerns over the number of people entering the property investment market and the stability of lending for this market considering current economic conditions.
Their particular focus is on restricting high loan-to-value and high loan-to-income lending, which may be risky for consumers if there should be a rapid or sudden decline in housing values or the property market in general. They also perceive the rapid growth in property investment lending as risky insofar as Australian consumers may be ‘placing all their eggs in one basket’ and they would prefer to encourage investment diversity amongst consumers.
By taking these measures, APRA is looking to make property market conditions safer for you as a consumer. By slowing down investment lending, APRA is also looking to slow down the rapid growth in property prices, particularly in Melbourne and Sydney where property prices are considered to be overheated by many property market analysts.
Many lenders and financial institutions are changing their criteria for property investment lending in order to meet APRA’s requirements. Most major banks have announced that they will be cutting the discounts available on investment loans, which means that interest rates on new investment loans could be slightly higher than interest rates on owner-occupied home loans.
Additionally, most lenders have tightened up their criteria for investment borrowing. Many are focusing on loan-to-value ratios, meaning you may require a larger deposit than previously and may find it more difficult to leverage properties or access equity to invest further if you are already an investor.
As your professional mortgage broker, your financial well-being has always been our number one concern. One of our primary responsibilities has always been to assess your personal financial situation and goals, and ensure that any loan we offer to you suits you, your financial goals, and your expenses.
Before applying for a loan for you, we always take into consideration whether or not you would be able to service your loan in the event that interest rates should rise and recommend insurance products such as mortgage protection insurance and income protection insurance to mitigate the risk of you not being able to meet your loan repayments if faced with a hardship situation.
Plenty of lenders are still offering property investment loans to borrowers who qualify under their new property investment lending criteria. It is likely that you will still be eligible for a loan and if you are looking to use property investment as a means to build wealth for your future, you should talk to us about your plans and investment goals sooner rather than later.
We’re here to help you work out if property investment is right for you. We have access to a wide variety of lenders and we’ll shop around amongst them to find you the most favourable loan considering your personal financial circumstances and investment goals. Call us today.
For more information on APRA, please visit their website, or speak to us.