Why are lenders changing policies for investment loans?

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goldrush
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Joined: Mon Mar 16, 2015 6:56 pm

Why are lenders changing policies for investment loans?

Post by goldrush »

Hi,

I put up the lower flat of my house on rent about two years ago. It’s been about six months since I’ve been considering buying an investment property. I’m looking for a property worth around $600,000 - $750,000. I want to use the rent income that I’ll be getting from the new property to pay for the loan.

My father did the same thing when he bought his home. I called the same lender to see if he could help me. However, I was informed that certain policy changes have been made for ‘investment loans’ that are now restricting me from using 100% of my rental income.

Why are these changes being made? I mean, aren’t property prices already high enough?

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Otto Dargan
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Re: Why are lenders changing policies for investment loans?

Post by Otto Dargan »

Hi and welcome to the forums goldrush,

The Australian Prudential Regulation Authority (APRA) is the government agency that regulates the bank. It is worried about a crash in the property market, which may be a result of the massive growth in property prices over the past few years.

In order to regulate this, a few policy changes have been made regarding investment loans. APRA may be considering to have lenders cap investor loan growth to below 10 percent per annum in order to help slow down the number of investment loans that financial institutions approve.

It is likely to increase the capital requirements for investment loans soon. As a result, lenders will find it more expensive to fund these types of loans compared to owner-occupied loans.

Although all of these changes may not have been implemented by APRA as of yet, a few major lenders may have already introduced certain policy changes, which may hinder the investor’s ability to borrow.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
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goldrush
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Joined: Mon Mar 16, 2015 6:56 pm

Re: Why are lenders changing policies for investment loans?

Post by goldrush »

I had no idea that the property market was so agitated at the moment. Thanks for clarifying this for me, Otto. But I’m still concerned that I may not be able to afford the mortgage. I’d like to know what kind of changes are being made regarding using rental income?

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Otto Dargan
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Re: Why are lenders changing policies for investment loans?

Post by Otto Dargan »

Hi goldrush,

Normally, lenders may accept your rental income when assessing your ability to pay off a home loan. A few lenders may have been willing to use 100% of your rental income in the past. However, this policy has now been scrapped.

Moreover, the percentage of rental income that a lender may accept will now be based on the type of property the borrower is purchasing. According to this policy, lenders may be willing to accept:
  • 80% of your rental income for a residential property.
  • 65% of your rental income for a commercial property.
  • 50% of your rental income for a serviced apartment.
Please note that the lenders that are introducing this may also accept negative gearing in order to assess your ability to pay back the mortgage.

For now, non-authorised deposit-taking institutions (non-ADIs), such as merchant lenders and finance companies, have not made any policy changes to their serviceability or pricing for investment loans.

It should be noted that although these finance providers may avoid such policy restrictions, they may often be funded by financial institutions. This means that there may be a possibility for APRA to have some influence on them.

You can check out our website to know more about these policy changes for investment loans. You can also call us on 1300 889 743 or fill in our free assessment form to discuss your situation in detail.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

goldrush
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Joined: Mon Mar 16, 2015 6:56 pm

Re: Why are lenders changing policies for investment loans?

Post by goldrush »

I see. I think I may be able to afford a loan if 80% of my rental income is accepted. I still have a few more questions regarding the policy changes. I’ll give you a call by the end of the week to discuss more on this with one of your experts. Thanks again for your help.

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htooOh
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Re: Why are lenders changing policies for investment loans?

Post by htooOh »

Hello. I am from India and I am looking to take out a mortgage to buy an investment property in Australia. As I was researching on foreign investments in Australia, I was hit with the recent policy changes implemented by a few banks on investment loans.

I would like to know what sort of effect this will have on foreign investors such as myself?

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Otto Dargan
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Re: Why are lenders changing policies for investment loans?

Post by Otto Dargan »

Hi htooOh,

As a foreign citizen living overseas, you may be more affected by changes in the exchange rate and the country that you are working in. However, this does not mean that foreign investors will not be affected by the policy changes for investment loan.

Some major lenders may now restrict foreign lenders from borrowing 70% of the property value, down from 80%. Despite this, it may still be possible for a foreign investor to get approved for a competitive mortgage by choosing the right lender, having sufficient equity, and a good deposit.

Please note that you may need FIRB approval before you can apply for a home loan.

You can speak with one of our mortgage brokers on our overseas number +612 8068 2257 to find out if you qualify for a mortgage in Australia. You can also check out our website for more information on investing in a property in Australia.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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htooOh
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Re: Why are lenders changing policies for investment loans?

Post by htooOh »

Thank you very much, Otto. I will give you a call once I go through the website. I want to find out more about property investment in Australia and I hope your mortgage brokers can help me. I am looking forward to speaking with you.

Amadeo
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Re: Why are lenders changing policies for investment loans?

Post by Amadeo »

The nature of investment lending has changed over time. Originally focused on hardware, engineering services, and bricks and mortar, investment lending has come to focus more on institution building, social development, and improving the public policy infrastructure needed to strengthen private sector activity.

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