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APRA clamps down on Investor interest – only mortgage loans…

 

The Australian Prudential Regulation Authority (APRA) has clamped down on interest-only loans to make it easier for owner occupiers.

The property market is still increasing with owner occupiers getting their share and there are more than enough owner occupiers buying to keep driving the property market up in all states, even though we are making it harder for investors to buy by restricting the lending criteria and being harder on the valuations.

The regulator said it had written to all lenders, and said from now on interest-only loans must be restricted to 30 per cent of new residential mortgage loans.

Currently, interest-only lending represents nearly 40 per cent of the stock of residential mortgage lending by banks…

“We will therefore be monitoring the share of interest-only lending within total new mortgage lending for each [lender], and will consider the need to impose additional requirements when the proportion of new lending on interest-only terms exceeds 30 per cent of total new mortgage lending.”

 

How will this affect you?

 

• If you know that your current financial position dictates that you are in a position to purchase with 1 or more lenders , you need to be aware that because each lender now has a lending cap of 30% on interest-only residential mortgage loans, if this cap is reached before you take action to purchase your next investment property you may miss the opportunity to get the lending you need and be pushed out of the market potentially costing you thousands of dollars trying to get back into the market until you find a lender where you will meet all their lending criteria. In the meantime the property market will continue to keep growing steadily and if left too long the amount you need as a deposit may increase as well.

 

Considerations  

 

• If you have plans of purchasing a property in the near future the best thing to do would be to have your financial position assessed by your broker today and define what your position would be with the lending , ie borrowing capacity, deposit required, need for refinancing for equity etc.. Then depending on your position you need to decide whether you would be better to take action straight away whilst you can get the lending especially if you are in a position to do so. Everyone’s personal position and financial goals are different so it’s best to speak with your broker and team of experts to see what the best steps would be for you to minimise any risk of attaining those goals.

 

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