How the recent changes to investment lending will affect you

The importance of a knowledgeable mortgage broker has come sharply into focus following the recent banking system changes to investment lending. Many panicked borrowers have turned to us for guidance in the months since the Australian Prudential Regulatory Authority (APRA) directed the major banks to place limits on investment lending and hold more funds in capital reserves.

With each bank responding individually to the directive, the changes in policy and pricing have varied wildly from one lender to the next. There has been confusion among borrowers and concern about how current and future investment lending is affected.

Do the APRA changes affect you?

The  Australian Prudential Regulation Authority (APRA) has recently clamped down on interest-only lending, in an attempt to cool the hot property market in Sydney and Melbourne. For banks and other institutions, interest-only loans have been restricted to 30 per cent of new residential mortgage loans. from July 2017, APRA has implemented stricter controls on interest-only loans with deposits smaller than 20 per cent.

If you fall into any of the below categories, you may well be affected by some of the changes.

• First time investor who has planned on getting into the market with a high loan to value ratio using mortgage insurance.
• Seeking an investment loan without a 20 percent deposit.
• Off plan property investor who has paid a 10 per cent deposit, with plans to finance the remaining 90 per cent of purchase price on settlement.
• Existing investor with a variable loan.
• Investor with multiple properties with plans to release equity to purchase another property.
• Investor with high levels of SMSF lending.
• Investor trying to maximise borrowings or with plans to refinance investment loan.

Seek advice from your mortgage broker

With all these changes and still more to come, it’s little wonder that borrowers are turning to mortgage brokers. While banks can in some cases only offer one solution, a broker with 25-30 plus lenders on their panel and years of inside industry experience can provide a number of solutions and recommendations.

A knowledgeable mortgage broker can make the world of difference to which direction you take with your investment. Here are just some of the tips we give our clients.

• Non-banks do not currently have the same restrictions on investment lending and have become a popular alternative for investor activity.
• Some people don’t realise their loan type is ‘investment’ and are now paying a higher rate of interest for no reason. It commonly happens when you initially purchase your home as an investment property, then down the track move into it but never change your loan type from ‘investment’ to ‘home loan’.
• Some lenders will bend their lending guidelines or offer you a better deal if you are in a ‘preferred’ occupation such as a doctor, dentist, pharmacist, legal professional or teacher.
• The less you borrow, the more lenders will be inclined to approve your investment loan application. Aim to boost your deposit through savings or by reviewing your current assets.

Update on the 2017 Federal Budget - 6 May 2017

The the key take homes from the 2017 Federal Budget for property investors are -  negative gearing has been retained but with some tightened rules and there are stricter controls for foreign investors.  

• strengthening the capital gains tax (CGT) rules by no longer allowing foreign or temporary tax residents to claim the main residence as CGT exempt.
• a 50 percent cap on foreign ownership in new developments in a bid to “safeguard the opportunity for Australian buyers to purchase in new developments”.
• The recently announced Victorian government Vacant Property Tax will be expanded nationally to encourage foreign owners to rent their properties out by applying an annual charge of at least $5,000 (reflecting the original application fee) to foreign owners who leave their properties unoccupied or not available for rent for six months or more each year.

Stronger rules for property investors

Whilst negative gearing has remained intact, property investors will no longer be able to claim travel expenses and some depreciation deductions beginning July this year, including the current deduction that allows claims on items purchased by a former owner of the property such as fittings and fixtures.