Investors set to be hit by more regulations and rate rises
Global banking reforms are set to hurt the hip pockets of investors who rely on rental income from their properties.
Proposed global banking reforms aimed at preventing another global financial crisis will have an effect on Australian property investors, according to the AFR. A report published by JP Morgan said that the Basel 4 reforms will require banks to hold up to five times the amount of capital against loans that are materially dependent on rental income.
According to the AFR, this could cause banks to increase interest rates on investor loans for borrowers with a 20% deposit by 3%, even if the RBA keeps the cash rate on hold. The overall size of the rate increases will be hugely dependent on the chosen definition of “materially dependent”, as this has been left unclear.
This is another hit on investors who have already seen restrictions on loans from APRA as well as an average interest rate increase of 0.65% on investor and interest-only loans since June 2015, according to a JP Morgan report quoted by the AFR.
“We think the repricing we have seen to date... is purely a toe in the water, [with banks] testing the elasticity of the market and the response from brokers and politicians. There is more pricing differential to come through the market… and we can definitely see the prospects for significant amounts of refinancing,” JP Morgan analyst Scott Manning said.
Looking at the individual banks, Manning says that ANZ would benefit the most from the Basel 4 reforms with its slow growth of investor lending and lower market share. Westpac and Commonwealth Bank have a larger proportion of loans that were written before the boom and Basel 4 will prevent them from adjusting LVRs for rising asset values.