Are Investment Loans Back In Favour?

personOtto Dargan access_timeApril 30, 2018

A couple of months back, we talked about how lenders are requiring borrowers to provide more details around their living expenses and are less likely to offer interest only loans.

The good news is that the Australian Prudential Regulation Authority (APRA) recently suggested that it will rollback restrictions that required lenders to cap investment lending, although it looks like the cap on interest only loans will remain in place for some time yet.

A quick recap on investor lending restrictions

Since 2014, lenders have been required to stick to a so-called investment loan “speed limit” that requires them to limit investor credit growth to 10 per cent per year.

Lenders also had to restrict interest only approvals to 30 per cent of their total loan book.

Added to all of this is the requirement for you to provide much more evidence regarding your spending and liabilities.

All of these changes were designed to cooldown the property market which had largely been flooded with investors.

Basically, the Reserve Bank of Australia (RBA) wanted to let some air out of what was predicted as a property bubble.

As a result, these restrictions have seen property investors suffer the most, with restrictions on borrowing limits and outright declines becoming more common.

Is it now easier to get an investment loan?

In its recent submissions to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, APRA found several failings with the way lenders were collecting information on a customers’ living expenses.

Out of the 420 mortgages reviewed with one major bank, 66% were found to have no itemised living expenses collected.

From this, APRA has proposed a more “targeted approach” to responsible investment lending.

That means they still see a risk in investment lending but the temporaray roadblocks will be removed soon!

The good

  • Limits on interest-only loans will likely be removed meaning there’ll be more lenders we can choose from.
  • Higher borrowing limits and lower interest rates on investment loans.

We’re expecting these changes in the next two months so watch this space and get in touch with your mortgage broker.

The bad

The biggest change that will affect property investors wanting to get a home loan – and all borrowers, for that matter – is how banks will assess living expenses.

Specifically, banks will be required to undertake higher scrutiny of your living expenses and are road-testing more categories for investigation such as certain luxury and entertainment expenses.

What can you do to prepare for these changes?

Overall, it looks like brighter days are coming for property investors to continue building their portfolios and for newcomers to get the mortgage they need to get their foot on the ladder.

The best thing you can do today is to reduce your living expenses:

  • Reduce your limits on your credit cards or cancel them if you rarely use them.
  • Spend less on entertainment, takeaway and general nights out.
  • Cut out spending on luxury items and online shopping (where possible).
  • Set a weekly budget, live within your means, and have a savings plan in place so you can save a good deposit.

Call us on 1300 889 743 or complete our free assessment form to find out if you qualify for a home loan or an interest only home loan.

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