Banks are now reducing borrowing capacity of property investors, May 2015
Recent changes in loan assessment policies by several banks has reduced clients maximum borrowing capacity. This has been done by making their loan assessment criteria tougher when assessing customers ability to repay loans.This is especially true for borrowing for investment properties or when using income from investment properties in calculations on the client’s ability to repay loans. Other changes include removing negative gearing allowances, limiting loan to value ratios to 80% for investment loans and removing discretionary interest rate discounts for investment loans. With different banks choosing different measures (out of those listed above) to make their borrowing power more conservative.
Why are the banks changing their policies to reduce borrowing capacity, particularly for property investors?
These recent changes are in response to the pressure that the Australian Prudential Regulation Authority (APRA) has been asserting on banks and lenders in response to the growth in particularly investment property loans for speculative real estate purchases (i.e. Sydney).These new changes come after APRA warned banks about the importance of vigilant credit assessments, after the outcomes of a hypothetical borrower survey were “a little disconcerting in places”. When using the assessments used by lenders when determining how much people could borrow under different hypothetical borrower scenarios, APRA found large differences in the maximum borrowing capacity between lenders. With the largest assessed maximum borrowing amount from a lender being in the order of 50% more than the most conservative lender. ARPA stated that one significant factor behind differences in borrowing capacity, particularly for owner occupiers, was how lenders measured the borrower’s living expenses. Another area of interest were the differences in the treatment of interest only loans in the hypothetical test, which included one borrower seeking a 30-year loan, with the first 5 years on an interest-only basis.
These blanket measures for property investors appear to be rather un-targeted given that the concern of an overvalued property market is restricted to Sydney and the new tighter measures apply regardless where the property is being purchased.
Limiting lending in certain postcodes is a target approach that has been used by lenders to limit bank exposure. It is unclear why lenders have not taken a more targeted approach of limiting lending or applying tighter lending measures by postcode now.
Are you still interested in borrowing to invest in Australia’s property market?
Some lenders still provide reasonable borrowing capacity for property investors. Find out more about investment property loans here:Investment property loans
Or contact a mortgage brokers near you to go through your finance options:
Mortgage brokers in Adelaide
Mortgage brokers in Brisbane
Mortgage brokers in Canberra
Mortgage brokers in Melbourne
Mortgage brokers in Perth
Mortgage brokers in Sydney
Mortgage brokers in other areas
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