Australian banks have been tightening investment lending due to recent expectations set by the Australian Prudential Regulation Authority (APRA).

This has further complicated the mortgage market and some might see this as a negative, arguing that Australia’s mortgage industry is already one of the most heavily regulated in the world. However, we think that APRA has gone about its business very sensibly.

The NZ equivalent to APRA took a direct policy intervention approach a few years ago when all new home buyers/borrowers were forced to come up with a 20% deposit. This had an immediate and dramatic impact on the housing market. NZ’s regulator reasonably quickly stepped back from that direct policy setting approach.

APRA have taken a less interventionist approach by setting expectations with our banks and other lenders. Over time, APRA want to see Australian banks make 3 changes…

1) Owner occupied home loans should have principal & interest repayments rather that interest only payments.
2) Investment loan approvals to be tightened
3) Tighter control over foreign investment loans

These expectations aim to ensure sustainable growth in the home loan investment sector, to protect both investors and the home loan market.

I guess what we are trying to say is that APRA have set some general targets and left it up to the lenders to decide how to get there. This has produced some very interesting decisions over the last 2 weeks:

  •  some lenders have stopped offering discounts for investment loans
  •  some lenders have offered better discounts on owner occupied loans
  •  some lenders have said that borrowers must have a 20% deposit for any investment loan purposes
  •  some lenders have offered bigger discounts to people with bigger deposits
  •  some lenders have started to price loans with principal & interest repayments cheaper than interest only loans
  •  some lenders have tightened up their “how much can you borrow?” calculators so investors can borrow less than owner occupiers.
  •  some lenders don’t have to make changes, and still offer competitive, open and flexible policy options

The emphasis is on “Some lenders”. Every lender has adopted completely different approaches to achieve APRA’s expectations.

None of these changes will have an impact on existing borrowers at this stage. However next time you request a change, or try to restructure your existing loans, it could be a different experience.

The mortgage market has just become even more complex. Our lending team is currently working overtime adjusting our mortgage qualification systems so that our clients can easily find the most suitable lender.

We guess this re enforces the reason why 51.4% of Australian borrowers now choose a mortgage broker to look after them. A declined applicant by one lender could be welcomed with open arms by another.

We still have lenders who offer competitive pricing and small deposits for investment lending, so if you would like to discuss any future plans, please feel free to give us a call. 9535 2444