With the housing boom and the current instability of the world economy, increased pressure has been put on all of the major lending banks to tighten their lending policies for those looking to borrow money for investing in property. Not only have they made more stringent criteria they have also increased interest rates on these loans. The Australian council of Financial Regulators has stipulated that they and banks should be looking to “reinforce sound residential mortgage lending practices”.
Raising Interest Rates
The rise in interest rates by major banks is one of biggest changes which are happening. They appear to be cutting back on the offering of massive discounts which they have traditionally offered to new property investors. Interest rate increases have been up to 0.27% on Investment Property loans and Interest only loans, meaning that those investing in property or buying a new home will see a significant difference in the amount of money that they are due to be paying back.
The rise in interest rates seem to be affecting all home loans which are available – standard variable, discounted, base variable and no fee variable. It also seems that this is going to be applied to existing variable rate interest only home loans, as well as new variable and fixed rate interest only home loans, and other special deals.
This means that those who are intending on taking out a home loan will need to re-calculate the amount of money that they can borrow – based on what they can afford to pay back, before committing to a loan and its repayments.
As a security measure in the unstable and somewhat unpredictable world economy, banks are considering putting in tougher rules about deposits that potential property owners need to put down. The Commonwealth Bank of Australia have stipulated that borrowers now have to put a deposit of 20% down on a home loan. This means that they have a security of a fifth of the money should there be a property crash.
This change now appears to be being implemented across all of the major home loan lender banks. Whilst it is understandable that the banks need to add in measures for their own security, it can mean that it is a lot more difficult for people to get accepted for a home loan in the first place, especially for first time property buyers. It seems that property owners will increasingly be those who are wealthier, or that have the opportunity to save up more money.
There may be an increase in family non-repayable gifts coming into play to assist first time property buyers. There are options available to borrowers in this regard
The negative impact of these changes will potentially see people having more trouble selling their properties, and reduction in first time buyers and hence a rise in the number of multi-property owners and a boost in the rental market.
Is there any Good News for Property Investors or Home Buyers?
Whilst these tough measures seem to be being applied across all of Australia’s major home loan lending banks, you can still find some good deals and better rates. By going to a mortgage broker you may be able to find loans of up to 85% – 95%, and they will be able to talk you through what other options you have available to you – which you wouldn’t be able to get from a regular bank. This would greatly increase a property investor’s ability to actually get a loan, as well as giving the best repayment options that are out there.
Just like every other country, Australia needs to protect its financial institutions from the threat of problems from the world economy. The intention behind these changes is this – to protect the financial institutions and in turn, the Australian people, but whether this is has a positive or negative effect, we will have to just wait and see.
If you have been affected by changes in banking lending policies, contact First In Finance to discuss alternatives.