Why is it suddenly harder to get an investor loan in Australia?
How lenders have responded to APRA's clamp down and what you should do if you're an investor.
If you’re in the market for an investment property, chances are you’ve observed the air-tight regulations for investor loans recently. Since the Australian Prudential Regulation Authority’s (APRA) request for investor credit to remain below 10 percent of the total amount lent, lenders are making you jump through more hoops just to qualify.
With strict regulations in full swing, how do you go about getting approved for an investor loan despite the changed rules?
Find out why APRA has urged deposit-taking institutions to slow the pace of investor credit and what you can do to get one step ahead.
Why have lenders cracked down?
With a staggering 12.4 per cent jump in investor loans over the past 12 months, and investor credit up 10.4 per cent, APRA has stepped in and prompted lenders to curb the rate of investor property lending through what it calls "macroprudential policy".
By keeping investor credit below 10 per cent of total loans, it’s hoped that the financial regulator will help put a lid on the heated property market.
These new policies will, potentially, stabilise property prices as investors won’t be able to access finance as easily, and they won’t be able to compete as aggressively with owner-occupiers. In turn, this will provide the Reserve Bank with leverage to maintain a lower cash rate.
As a result of the change, many Australian lenders have reviewed their lending criteria and serviceability models, and are no longer providing additional discounts above and beyond the standard discount rate. In turn, this has made it more difficult, and costly, for investors to take out a loan for investment purposes.
How have lenders changed their lending criteria?
The extent to which lenders have altered their lending and serviceability criteria varies, however the table below illustrates the changes implemented by some major Australian lenders;
Below are some of the latest APRA-related changes from the big four and other lenders:
AMP
Interest rate changes
- Investor loans interest rate increased bu 0.47% from 7 September, and any loans currently approved but not settled
Other changes or restrictions
- No longer offering investor loans
ANZ
Interest rate changes
- Variable interest rates on investment loans to rise by 0.27% and new fixed interest rates increased by 0.30% from 10 August
Other changes or restrictions
- Abolished interest rate discount for new property investors
Bank of Queensland
Interest rate changes
- An additional 0.29% will be added to the standard variable rate from 10 August
Other changes or restrictions
- N/A
Bankwest
Interest rate changes
- Complete Fixed Home Loan 2 year fixed add 0.15% to interest rate
- Fixed Rate Home Loan 2 year fixed add 0.35% to interest rate, 3 year fixed add 0.20% to interest rate
Other changes or restrictions
- Investment loans are capped at 80% LVR
CBA
Interest rate changes
- Removed interest rate discount for new investors
- Variable interest rates raised by 0.27% with new fixed rates increasing from 10 August by 0.10% - 0.40%
Other changes or restrictions
- Capped LVR at 80%
- Removed $1,000 incentive for new investors
- Not accepting tax breaks from negative gearing when reviewing applications over 90% LVR
- Service loading of 20% now applied to all existing home loans and line of credit loans
Heritage Bank
Interest rate changes
- Added 0.30% to variable and Living Equity loans as well as adding 0.10% to new fixed loans
Other changes or restrictions
- N/A
Homeloans.com.au
Interest rate changes
- Added 0.15% loading on Ultra and Ultra Plus variable home loans with LVR above 80% and fixed rates, if LVR is below 80% the loading is 0.30%
- Optima investment or interest only home loans add 0.10% loading to interest rates
Other changes or restrictions
- N/A
Homestar
Interest rate changes
- Added 0.10% loading to all investment loans plus 0.10% loading added for all interest only loans
- If the loan is both an investment loan and interest only both loadings apply therefor an extra 0.20% interest is applied
Other changes or restrictions
- Capped LVR on investment loans at 85% with LMI capitalisation
iMortgage
Interest rate changes
- Fusion loans used for investment purposes will add 0.15% loading to interest rates
- Elite loans used for investment purposes will add 0.10% loading to interest rates
Other changes or restrictions
- N/A
NAB
Interest rate changes
- Interest only loans rates raised by 0.29% from 10 August for new loans and fixed rate loans and from 10 September for existing variable and line of credit loans
Other changes or restrictions
- N/A
Newcastle Permanent
Interest rate changes
- Special rate discount not available on Fixed Rate Home Loans
Other changes or restrictions
- New investment loans LVR capped at 80% as well as the waiving of the establishment fee no longer applying for investment loans
Suncorp
Interest rate changes
- Increase of 0.27% to the interest rate for standard variable, Back to Basics and Access Equity products for new and existing investor customers from 31 August
Other changes or restrictions
- N/A
Westpac
Interest rate changes
- Removed interest rate discount for new investors
Other changes or restrictions
- Raised interest rate floor for investors from 6.8% to 7.1%
- Stricter criteria for non-residents
What core changes have been made to the rules?
- Stricter borrowing capacity assessments: Lenders have implemented changes to borrowing capacity reviews. In particular, they’ve reduced the amount of rental income they factor in when estimating your serviceability potential down to 60%, compared to 80% before.
- Lower loan-to-value ratio (LVR): Lenders are now offering less credit to investors in relation to property price. For example, Bankwest is allowing investor loans to have a maximum LVR of 80%, compared to its previous LVR of 95% for investors.
- Less discounts: Rates for investor loans are no longer subject to unique discounts, which ultimately means that accessing finance becomes more expensive as there are fewer ‘special’ offers. For example, ANZ is no longer offering discounts to their investor customers.
ALSO READ: Find out how the Big Four have changed their lending criteria
What’s an investor to do?
APRA’s new policies govern all deposit-taking institutions, which means it will be more difficult for you to access finance for an investment property.
However, here are some ways that you can optimise your chance of being approved for investor credit.
- Compare smaller lenders: Although APRA is the regulatory body for deposit-taking institutions, there are many niche lenders in the market that don’t fall under its governance. When comparing investor loans, look further than the ‘Big 4’ or the major financial institutions, and consider smaller lenders, such as building societies, that may have less strict serviceability and borrowing requirements.
- Larger deposit: Try to boost your deposit for your investment loan through disciplined savings or by reviewing your current assets. Lenders will be more inclined to approve your application if you’re considered a low-risk borrower, and need to borrow less.
- Increase your rental income: It may be possible to boost your rental income by undertaking a renovation or charging higher rent to reflect the current market conditions, to increase your serviceability potential.
- Build up and borrow against equity: If you own existing property, you should work towards increasing your equity so you can potentially borrow against this equity and refinance with a new investment loan.
ALSO READ: Need more advice about how to cope with the new regulations?
What type of investor loans should I compare?
With fewer incentives and stricter loan limits, you’ll be required to come up with a larger deposit and you’ll need to supply full documentation that shows your ability to cope with interest rate rises, as well as your ability to service your mortgage.
It’s therefore vital that you compare investor loans side-by-side to find a lender that may provide more accommodating criteria, given the current market.
