There are big changes ahead for investors, read on if you have an investment loan as this will affect you.

There’s been a lot of talk lately that the Melbourne and Sydney property markets are in danger of overheating and becoming potentially unsustainable with double digit house price growth soaring across both markets.

Since 2014, the RBA has made it clear it has concerns about the level of investor activity propelling these two markets. High rental yields and low interest rates has seen investors flocking to snap up property in these areas.

Fast forward two years, and with Sydney’s median house price reaching $900,000 and Melbourne’s $718,000, our banking regulators are now officially spooked.

Ordinarily, an overheated market can be cooled by raising interest rates. Problem solved. However, with a mining downturn this is not a viable solution as the rest of the economy needs the current low interest rates.

So how to tell investors to back off, without actually putting the brakes on them?

Make it more difficult for them to borrow money to invest in the first place.

Enter APRA, Australia’s Banking Regulator. They’ve imposed a rule that the big four banks cap investment lending to 10% of their total loans. What this means to the average punter is that each bank now has to rebalance their books and slow down on approving investor loans.

Cue big changes to bank interest rates and lending policy for investors.

Each bank has taken a different approach however the biggest change that has been adopted by all banks is a higher interest rate for investors. Each bank now has a separate standard variable rate for investors as well as owner occupiers.

Some of the other changes we have observed:

• Reduced interest rate discounts for investors
• Reduced LVR’s for investors meaning higher purchase deposits are required (some banks only lending a maximum 80% LVR to investors)
• Reduction of rental income allowed to be used in serviceability (previously 100% of rental income was allowed, some banks are now only allowing 80% of rental income)
• Negative gearing tax benefit no longer used as income for borrowers

And it’s not just investors buying property that will be hit with these changes. Anyone with an existing investment loan will bear the brunt of a rate hike, along with an impact on future borrowing capacity as a result of the changes outlined above.

It’s now more important than ever to use a broker with knowledge of each different banks lending policy and their stance on these APRA imposed rules to ensure your bank supports your investment strategy.

Contact us for a complimentary review of your investment portfolio today.