Why banks are cracking down on investors and what you can do

Adam Smith 1 March 2017 NEWS

Why banks are cracking down on investors and what you can do

Investment lending may be tightening, but options still abound.

In 2014, the Australian Prudential Regulation Authority, or APRA, decided to put the brakes on investor lending. As property prices skyrocketed and investment lending made up a bigger and bigger slice of the home loan pie, the regulator decided it was time to cool the market down.

The regulator put a 10% limit on growth in investor lending, hoping this would take some of the heat out of the housing market. The cap doesn’t seem to have done much, as investor loans now make up 40% of the market.

Why banks are cracking down

APRA has expressed its concern to Australian banks. They seem to have taken the message on board, with numerous lenders lifting rates on investors and putting new restrictions in place. Commonwealth Bank and Bankwest announced they would no longer offer new investor home loans through the mortgage broker channel, while AMP said it would halt accepting new investor refinancing customers.

The changes appear to be a proactive move by banks to stave off further regulatory intervention. APRA chairman Wayne Byres told an economic conference that, while there were no plans to further restrict the regulator’s 10% cap, lenders knew to stay in line or risk further APRA action.

"At least for the time being, the benchmarks that we communicated – including the 10% benchmark for annual growth in investor lending – remain in place and lenders that choose to operate beyond these benchmarks are under no illusions that supervisory intervention is a possible consequence," Byres said, according to SBS.

While there is some debate among global regulators about whether or not investment home loans are inherently riskier, APRA said it targeted the segment because of its accelerated growth.

“We highlighted investor lending because it was an area that we observed accelerating credit growth and very strong competition, a combination in which the temptation to compete and protect market share could well drive a weakening of standards,” Byres told a group of economists at a 2015 business luncheon.

"By moderating growth aspirations, we are reducing the tendency for lenders to whittle away lending standards in the name of matching competitors, because inevitably, when it comes to lower standards, it's the other guy's fault.”

What you can do

While many lenders may be clamping down on investors, there are still steps you can take to better position yourself if you’re looking for an investment loan.

Save a bigger deposit

Some lenders have restricted the loan-to-value ratio (LVR) available to investment customers. This means you might need to save a larger deposit to see your loan approved.

Consider P&I payments

Interest only payments are a common strategy employed by investors. By only paying the interest portion of a home loan, investors can keep their monthly repayment to a minimum. The idea is to later sell the property for a capital gain. The problem with interest only payments is that they don’t reduce the principal, or original amount borrowed. This can be a real risk should a property decline in value, and some lenders are beginning to tighten their rules around interest only repayments. If you want to increase your chances of approval, consider making principal and interest repayments instead.

Look at the alternatives

While many lenders are tightening their investor offerings, others still have very competitive deals for investors. Non-bank lenders are in a unique position to appeal to investors, as they are not regulated by APRA and aren’t bound to the 10% lending cap. Compare investment loans below to see what’s on offer.

Compare today's investment home loan rates

Rates last updated October 16th, 2018
$
Loan purpose
Offset account
Loan type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.89%
4.24%
$0
$0 p.a.
80%
Fix your rate and minimise repayments for 2 years with this interest-only investor mortgage.
3.99%
3.99%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
3.99%
4.13%
$0
$10 monthly ($120 p.a.)
80%
A competitive variable rate home loan with no application fee.
3.84%
3.91%
$0
$0 p.a.
80%
Get instant online approval and flexible repayment options with this fixed rate mortgage for investing.
4.08%
4.09%
$0
$0 p.a.
90%
Low-fee investor mortgage with a partial offset account. 10% deposit option available.
3.79%
3.82%
$0
$0 p.a.
80%
A variable investor mortgage with a high borrowing amount so you can fund a large purchase.
3.93%
3.94%
$0
$0 p.a.
80%
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account.
3.99%
5.35%
$600
$0 p.a.
90%
Competitive rates for fixed for 3 years with redraw facility.
4.05%
4.22%
$0
$10 monthly ($120 p.a.)
90%
Lock in your interest rate on your investment property for 2 years. For a limited time you can earn double Velocity Frequent Flyer Points.
3.91%
3.92%
$0
$0 p.a.
80%
Investors can go from application to approval in as little as 20 minutes with this innovative online lender.
3.98%
3.98%
$0
$0 p.a.
70%
Investors can get a 100% offset account and a low rate if they have a big deposit. 100% online application process.
4.09%
4.87%
$0
$395 p.a.
90%
Buy your investment property and set your repayments for the first year. Available in QLD, NSW and ACT only.
4.24%
4.00%
$0
$0 p.a.
80%
Buy an investment property and enjoy the certainty of a 3-year fixed rate with interest-only payments.
4.09%
4.40%
$0
$0 p.a.
70%
Forget about rate rises for two years and minimise your investment repayments with this interest only mortgage. Requires a 30% deposit.
4.54%
4.56%
$0
$0 p.a.
80%
An investment loan for new Heritage Bank customers. Low fees and interest-only repayments.
3.97%
3.99%
$0
$0 p.a.
80%
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
3.99%
4.62%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
4.29%
4.31%
$0
$0 p.a.
80%
Investors will pay no application or ongoing fees for this interest-only loan.
4.18%
4.18%
$0
$0 p.a.
80%
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
4.90%
4.31%
$0
$0 p.a.
80%
Lock in a fixed rate for 5 years and make interest-only payments with this investment loan.
4.43%
4.24%
$0
$0 p.a.
90%
Interest-only loan for investment. Available with a 10% deposit and includes a partial offset account.
3.99%
3.99%
$0
$0 p.a.
70%
Investors with a 30% deposit can get this low rate loan to fund their property portfolio.
4.29%
4.31%
$0
$0 p.a.
80%
A simple, variable rate investor loan from an online lender that keeps fees to a minimum.
3.99%
4.62%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
4.24%
4.68%
$0
$0 p.a.
90%
Fix your investment repayments for 1 year. You can get this loan with a 10% deposit. Available in QLD, NSW and ACT only.
4.13%
4.14%
$0
$0 p.a.
90%
Access a fee-free offset account and a special interest rate for investors.
4.14%
3.96%
$0
$0 p.a.
80%
Investors can go from application to full approval in as little as 20 minutes with this innovative online lender.
4.18%
4.19%
$0
$0 p.a.
80%
Investors can easily access their equity using BPAY, a debit Master Card or cheque book with this interest-only line of credit.
4.31%
3.95%
$0
$0 p.a.
80%
A variable interest-only loan for investors. Fast application, low fees, optional offset account. 100% online lender.
4.29%
4.27%
$0
$198 p.a.
70%
Fund your property portfolio with this fixed rate mortgage which includes a 100% offset account. 30% deposit required.
3.94%
3.92%
$0
$0 p.a.
80%
Lock in your interest rate for 2 years and enjoy flexibility, an optional offset account and a fast online application process.

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