As many of you would have seen in the market with recent changes implemented by APRA around investor lending and interest only caps, there has been constant movement with lender focus and interest rates.
Two main changes that have affected buyers in today’s market include the 10% investor cap imposed on Australian lenders and restrictions enforced by APRA around interest only lending.
In an urge to control the Sydney and Melbourne booming property markets without increasing interest rates APRA, have continued to enforce a maximum 10% growth on investor lending per financial year on the Australian banks.
This in turn led to a series of lending restrictions which have affected how much consumers could borrow from lenders with a majority of investors been forced out of the market. The main restriction introduced to restrict investor lending was a loading been applied on existing commitments which reduced income available for new borrowings and in turn reduced investors borrowing capacities.
Another major change that has affected consumer lending is the focus on interest only lending for all consumers.
Due to most lenders having more than 40% of their loans as interest only raised alarm bells for APRA as these interest only loans sometimes extended any where more than 10 years and when these interest only periods began to expire, consumers were forced to pay these loans in a much shorter period at principal and interest repayments and not everybody could afford the repayments.
It also affected a lot of owner occupied consumers who are paying minimum repayment on their own home and were not repaying the capital they have borrowed putting them in an unfavourable financial position.
APRA set an expectation where all lenders needed to have no more than 30% of their loans at interest only. Lenders responded with tighter credit controls around interest only lending, but the main change we saw was a higher interest rate for interest only loans.
Lenders such as CBA in 2017 alone have increased investor interest only lending three times with a total increase of 0.68%. This figure may not seem high, however in relations to Sydney’s median house price of $1,151,565 according to Domain’s April 2017 property newsletter, this equates to an additional $7830 in interest per year.
Recently with a reduction of interest only loans from Australian banks, we are now starting to see a reduction in interest rates on some interest only loans by a few lenders and more competitive pricing by other lenders.
With these constant changes and pressures from APRA, more and more consumers are seeking assistance from mortgage brokers as all lenders will have a different borrowing capacity based on your individual financial position.
With this in mind APRA’s next agenda may be targeting the smaller lenders that are lending far more to consumers then the average bank. A recent example of this scenario would be a BlueCherry client who had no more than a $200,000 borrowing capacity with a major banks and was able to borrow in excess of $700,000 with a non major lender.
Thank you for taking the time to read our first blog and I hope you’re looking forward to the next BlueCherry Home Loan update.
Kindest regards Ozgur and George