APRA – investment property crack down

Pressure from APRA has influenced many lending institutions to review their investment lending policies. This blog looks at what steps APRA has taken to stabilise investment borrowing practices to make property market conditions safer for consumers. APRA who? The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the Australian financial services industry. They oversee banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurance, friendly societies and most members of the superannuation industry. APRA performs a significant role in the protection of the Australian Community’s financial-wellbeing. They do this by establishing and enforcing prudential standards and practices to ensure that under all reasonable circumstances, financial promises made by institutions are met and that our financial industry remains stable, efficient and competitive. APRA’s activities ensure that consumers have a reliable, fair financial industry that allows them to confidently perform their day-to-day transactions and investments. APRA’s new measures regarding property investment lending: APRA wrote to all ADIs (Authorised deposit-taking institutions such as banks and other lenders) in December 2014, setting out prudent lending standards, particularly for investment lending, that included a benchmark for the 10% maximum growth of residential investment mortgages. Why? There are concerns over the number of investors entering the investment property market and the stability of lending for this sector considering present economic conditions. Their focus is on restricting high loan-to-value and high loan-to-income lending, which may be risky for consumers in the event of sudden declines in housing values or the general property market. They also perceive the rapid growth in property investment lending as risky in that Australian consumers may be ‘placing all their eggs in one basket’. APRA would prefer to encourage consumers to diversify their investments and in so doing create safer property market conditions. By slowing investment lending, APRA is looking to slow down the rapid growth in property prices, particularly in Melbourne and Sydney where prices are felt by many analysts to be overheated. What’s the impact for property investment borrowing? Many financial institutions are changing their criteria for property investment lending to meet APRA’s requirements. Most major banks have announced cuts to discounts available on investment loans resulting in slightly higher interest rates than those on owner-occupied home loans. Some lenders have directly increased interest rates on investment borrowing. Most lenders have tightened up investment borrowing criteria. Many are focusing on loan-to-value ratios, with the result that most lenders will now require a larger deposit for investment property loans than previously and property leverage or access to equity may be more difficult. What should I consider when applying for an investment loan? As your professional mortgage broker, your financial well-being is our number one concern. A primary responsibility of your mortgage broker is to assess your personal financial situation and objectives, and ensure that loans offered are suitable for you, your financial goals, and your expenses. We always take into consideration, before applying for a loan, whether you can service your loan in the event that interest rates rise. We recommend insurance products such as mortgage and income protection insurance to mitigate the risks of unforeseen financial hardships. Most lenders still offer property investment loans to borrowers who qualify under the new investment lending criteria. It’s still likely that you will qualify for an investment loan so if you are considering property investment as a method to build wealth for your future, call us to discuss your plans and investment goals. We can provide the information for you to make an informed decision about your investment property loan. We shop around amongst our wide variety of lenders to find you the most favourable loan considering your personal financial circumstances and investment goals. Call Top Ten Home Loans today – Richard West (0402 845285) Sunshine Coast, Coolum Beach, www.toptenhomeloans.com.au.

About Paul Brazier