Having received a large number of calls of concern last week over what is happening in the banking industry, I thought I’d copy the email here that I sent out last week.
APRA is the regulatory body for ADI’s, being Authorised Deposit-taking Institutions (mainly the banks). First, the changes are not targeted at home loans taken to purchase your homes. Rather, there is pressure on the lenders to tighten their policies for lending against, and to buy, investment properties.
Lending to property investors is way past the speed limit, particularly in Sydney and Melbourne. APRA has made it clear that the banks need to be more careful.
The capital adequacy ratio’s for the banks will also increase. What this effectively does it make it more expensive for banks to lend to investors. NAB, CBA, and Westpac have already announced to us Mortgage Brokers that investors will not be offered discounts better that is what is published. As you know, some brokers (including iChoice, of course) often get discounts 30 or 40 points better than what the banks advertise. Thankfully, we expect our capacity to get much better-than-published rates will still apply to home loans for places you will live in.
St George has pre-warned iChoice of forthcoming changes, too. For those of you wanting to land a better rate on your investment loan, or perhaps to unlock some equity, these are probably actions you should be considering immediately – like right now. And the $1,250 Refinance Rebate is still alive. The mortgage industry is ready for a few busy weeks ahead.
Once all the changes have been implemented, we will see stricter servicing calculations and pressure to reduce interest-only loans and ‘cash-out’ (equity unlocking). Also, several lenders have already ceased exceeding 80% LVR for investment property loans. On that note, it is important for anyone you know that may have a pre-approval in place for an investment property. Pre-approvals aren’t always what they seem to be.
It’s being branded a ‘mini-GFC’, but it actually seems like we’re just going back to the old days, where speculative investment loans are harder to get and are not priced the same as your owner-occupied home loan.
The concerns held by APRA are to protect our system should we, in fact, be at 12 o’clock on the property cycle. You can be assured that iChoice is on our front foot with all changes and will keep you posted, and are more than happy to advise based on your individual goals and circumstances.