On the 9th February this year the Commonwealth Bank of Australia (CBA) advised that they would no longer be accepting applications to refinance investment loans from other financial institutions. CBA is the biggest residential home and investment loan lender in the country. The announcement was always going to have consequences for most other lenders in the market as the CBA’s market share of this segment needed to find somewhere else to go.
You would think that other lenders would be clapping their hands with glee at the opportunity to grow their loan books but this is not the case, as guidance issued by the Australian Prudential Regulation Authority (APRA) requires that lenders keep the growth in their investment lending to below 10%.
In a letter to lenders on the 17th March 2017 APRA re-affired the 10% cap on investment lending and advised that lenders ensure that they remain “comfortably below” this level. (You can read the letter here)
In addition to the “comfortably below” for investment lending growth APRA also identified interest only loans as an issue and provided guidance to the banks that interest only loans should make up no more than 30% of their loan book. There are good reasons why people take out interest only loans, the most common reason being that they have other debts that are not tax deductible.
So how does this affect you?
As a result of the above a couple of things have happened.
Firstly, owner occupied home loans with principle and interest repayments have cemented their place at the top of the lending ladder as being the most desirably type of loan for lenders.
Secondly, banks policies have been adjusted to ensure that they comply with the guidance which has made investment lending more difficult to place.
Thirdly, so as to ensure they don’t attract too much investment lending many lenders have put up their investment loan variable interest rates
Fourth, interest only repayments for both owner occupied and investment lending are now being charged a premium of between .1 and .2%
If you have investment loans already, you will have received a notice advising of an increase in the interest rate on your loans and if they repayments are interest only a further increase.
If you are looking to purchase a new investment property, and make interest only repayments on your loan then you will need to expect to pay more – at least .5% more for the time being. Obviously, when the heat comes out of the Sydney property market and growth in loans slows then it will all be up for negotiation again.
If you have an owner occupied home loan and you are making principle and interest repayment then now might be a great time to negotiate yourself a better deal, after all you are flavour of the month!
If you would like to chat about your home or investment loan then please get in touch via email at email@example.com or 0451 471 061