If you've been looking at investment finance options recently, you might have noticed some changes. Some lenders have reduced or removed both interest rate discounts and special rebates for investors, while others have cut maximum loan-to-value ratios on such loans.
These were once tempting incentives for Australians to enter the investor market, allowing them start a portfolio at a lower entry cost. So why have they suddenly been taken away or lessened?
Concerns about investor activity, Sydney market drive changes
The Sydney property market has been the subject of intense discussion across the country for some time now, with incredible price growth enticing more and more people to become Australian property investors. The latest CoreLogic RP Data Hedonic Home Value Index showed that, as of May 31 2015, Sydney dwelling values had climbed by a staggering 15 per cent.
While this has been good news for those holding Sydney investment property, it's raised eyebrows among government regulatory agencies. Back in December, the Australian Prudential Regulation Authority (APRA) - Australia's banking regulator - informed authorised deposit-taking institutions (ADIs) that they would be paying closer attention to lending standards. At the time, it warned that investor lending growth of above 10 per cent would run the risk of "further action" from the agency.
Investor lending has continued strongly since then, however, reaching 20.9 per cent in March of this year - well past APRA's 'red line' of 10 per cent. In response, APRA and other authorities have made comments indicating lenders could face more aggressive regulation if they do not check their lending to investors.
For instance, APRA Chairman Wayne Byres commented in a May 13 speech at the Customer Owned Banking Association CEO and Director Forum that the lending practices of some institutions are still "less than prudent".
"ADIs with more aggressive practices should fully expect to find APRA increasingly at their doorstep," he added.
What does this mean for buyers?
In response to all of this, some lenders have now tightened up their lending standards, taking away those extras that previously served to tempt investors into the market. This isn't necessarily the end of the world, however.
For one, APRA's efforts are aimed at curbing the kind of reckless lending that sent the economy into free-fall back in 2009. If you have a sound financial bedrock, and establish a property investment plan that sources a property appropriate for your future plans and stage in life, you shouldn't have trouble getting a loan.
These developments are also a good reminder of the importance of working with property experts to get finance. DPN, for instance, has top tier status with a number of lenders, and would be able to get you exclusive offers and more favourable pricing than if you went on your own.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879. Casa Capace Operations Pty Ltd, NDIS provider number 4050038018 trading as Casa Capace.