There have been a lot of changes by banks to interest rates and investor loan policies recently. You may have seen in the media recently that the banks are increasing interest rates for investors and some lenders have stopped lending to property investors altogether. It’s important that you are aware of these changes and the impact is has on you as a borrower and property owner.
So what’s been happening and why the radical changes?
In December last year APRA (the regulator that overseas all the banks) sent a letter to all of the big banks outlining the steps they should take to maintain Australia’s high lending practices. The banks were concerned about the historically low interest rates, high levels of household debt and the accelerated credit growth for investors. APRA’s view was that investor credit growth should not be growing more than 10% per annum as it could cause the market to crash once rates started increasing.
In May this year, APRA reminded the banks to slow down lending to investors, otherwise they would force the banks to hold extra capital against investment loans – or put simply, it would cost the banks more to lend out money for investors which would hit their profits.
On 20 July 2015 APRA sent another letter to the banks as the growth had not slowed down as much as they wanted and to increase their capital requirements for Australian residential mortgage exposure from approximately 16% to at least 25%. Which is almost double to what was required previously?
What are some of the changes as a result?
At the time of writing this, both CBA and ANZ have said they will be raising variable rates for investors (both new and existing) by 0.27%, NAB will be increasing interest rates on interest only loans (for both owner occupied and investment loans) by 0.29%, Westpac and St George have yet to announce their changes. AMP Bank announced yesterday that they will be increasing variable rates on all existing investor property loans by 0.47 per cent per annum and they will not be accepting any new applications for property investors going forward until market conditions improve. Which is quite extreme.
As a result of these changes we are likely to see households paying higher home loan rates and shareholders receiving lower profits.
How do I know if these changes affect me and what should I do?
If you currently have a home loan and are likely to be impacted by these changes your bank will notify you. Other lenders and banks that have yet to make their changes are likely to do so in the coming weeks. If you are affected and you would like me to review your current situation to ensure you don’t get caught out with these changes, please contact me.
Take care.
Kind regards,
Theo Angelopoulos
The Loans Analyst