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Home Loans Tightening Nationally

  • Tags: Property Investment, Property Trends, Gold Coast Property

Home Loans Tightening Nationally

The Reserve Bank and Australian Prudential Regulatory Authority crackdowns on investment lending are having a significant effect; not all of it is bad, although it is putting a brake on growth in prices. 
 
In the last week we had a situation where an investor buyer who was pre-approved within the last 60 days to purchase a property up to a price had the application declined after signing the contract to purchase the property. His Mortgage Broker remarked that it seems as though the Banks are changing the rules from week to week.
 
This little disappointment (we will sell it again) got me looking around at what is happening. The first thing to remember is that it all revolves around the Sydney and Melbourne property markets.
 
It seems to be not so much the banks as the interaction of the ratios and margins required by the regulatory authorities with the Bank’s loan book at the time. As far as the regulators are concerned the strategy of using bank supervision to control the buildup of excess risk in investor lending is working as intended.
 
In a recent Corelogic article on Interest-Only Mortgages, research director Tim Lawless believes the slowdown was initially sparked by the Banks tightening lending as they approached the 10% annual growth limit of their loan portfolios imposed by APRA in late 2014.

Home Loans Tightening Nationally
 [Source: Corelogic_APRA]
 
After initially working to constrain investor lending in the second half of 2015 Banks found themselves comfortably under the cap by the middle of last year and lending accelerated again through the latter half of 2016.
 
The Banks have already responded to the concerns of the RBA and APRA about interest only lending over the 30% limit that applies from the September quarter. They wrote 7% less interest only loans the June quarter than in the March quarter and 17% less than the June quarter last year.
 
Principal and interest investor loans are now running at about 50 basis points above the owner occupied rate and there is a further 50 basis points premium for interest only loans. That's a full 1% more than an owner occupier.
 
The major banks think that the gap in the Housing market left by the retreat of investors is being filled by the owner occupiers. Lenders have been approving about 37,000 owner occupier mortgages for established housing each month this year up from the monthly level of about 35,000 that had held steady for the previous three years.
 
We think a lot of these investors are heading north to the Gold Coast and other areas where prices are lower than the Sydney and Melbourne markets for much better property and rental yields are also higher which means that investors can borrow on a principal and interest basis.

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Home Loans Tightening Nationally
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