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As a result of APRA’s pressure, lenders began to put new lending guidelines in place in order to keep investor lending increases below 10%. So how will this affect property investors, both new and existing? Take a look below.

           

Over the last couple of months, investor lending has seen a number of new changes.

In order to slow down investor lending, the Australian Prudential Regulation Authority (APRA) has implemented stricter guidelines. In December 2014, APRA urged banks to keep the annual growth of investor lending to 10 per cent or less per year as they were concerned about the potential for low interest rates to create a property price bubble, particularly in Sydney. However, in June, APRA figures showed that investors housing debt increased by 12.4 per cent up to March 2015.

As a result of APRA’s pressure, lenders began to put new lending guidelines in place in order to keep investor lending increases below 10%. So how will this affect property investors, both new and existing? Take a look below.

How will this affect the property market?

Stricter guidelines, increased interest rates and having to come up with a larger deposit could see property investors reassess their plans to purchase. With fewer investors looking to buy, this may mean that competition within the capital cities could begin to ease, giving people looking to purchase a home to live in more of a chance to get a foothold into the property market. Less competition should be good news for those looking to purchase.

How will this affect lenders?

A number of lenders have made changes to their investor lending guidelines. Some lenders will be capping loan amounts for investment properties at 80 per cent LVR (Loan to value ratio) and have also amended their serviceability calculations. Lenders use a ‘stress test’ to calculate whether a borrower would be able to handle repayments if the interest rate was to increase. Under the new guidelines, some lenders have increased this rate to a minimum of 7.5%. If you have done calculations in the past on how much you can borrow for an investment property and are still looking, it may be worthwhile checking your numbers with your lender again.

How will this affect first time investors?

First time investors who struggle to save for a 20% deposit will be significantly impacted by these changes. With some lenders applying strict guidelines, it may be harder for first time investors to prove they will be able to afford the mortgage repayments and come up with the required deposit. Don’t despair. Not all lenders have introduced a 20% deposit requirement. State Custodians have not changed their required deposit amount for investors. You can still borrow up to 90% of the value of the property with our most popular loans.

How will this affect existing property investors?

Existing property investors may see an increase in their home loan interest rate, depending on which lender they are with. Some lenders have applied the increased interest rate to their existing borrowers so you need to check your next statement or internet banking to find out if you are impacted. Interest rate increases are a prime opportunity to re-assess your home loan. Some lenders haven’t increased interest rates for investment loans so it is well worth investigating your options.

Investors who wish to access their equity in order to build their portfolio may run into some difficulty with the new serviceability requirements. Lenders who have applied these new guidelines will most likely assess an investor’s whole portfolio at the stress test rate of 7.5%. This could make it harder for investors to continue to grow their portfolio.

In order to get your head around these changes, both first time and existing investors need to spend extra time doing research. While most major banks have made changes, there are still some lenders who have not changed their interest rates and will still lend to 90% of the value of the property. Contact potential lenders to get them to explain their investor loan options and crunch the numbers on your deposit and how much you can lend.

At State Custodians, we work hard to find solutions for borrowers. If you are an investor and need advice State Custodians can help. Give our expert Lending Specialist team a call on 13 72 62 or leave your details here and they will contact you.