Will investors benefit from APRA’s removal of the growth cap?

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On April 26, the Australian Prudential Regulation Authority (APRA) said it was prepared to remove the 10% cap on growth in new lending to property investors for lenders who could demonstrate stronger lending standards.

While some analysts suggest the removal of the cap would benefit property investors, Helen Collier-Kogtevs, managing director of Real Wealth Australia, believes scrapping the cap would hardly benefit property investors.   

“I don’t believe [scrapping the cap] will lead to an increase in lending by investors. This is because most banks were below the 10% threshold before the 10% rule came in, so lifting the ceiling won’t do much,” she told Your Investment Property. “The biggest impacts that are stopping investors are the ridiculously high stamp duty rates, APRA’s rules, and APRA and the banks’ servicing rules.”

Collier-Kogtevs added that since APRA’s restriction on higher-risk interest-only residential mortgage loans remained, investors would still be stymied. 

“Investors will definitely be stymied by the 30% restriction on interest-only loans. This is because investors will have to take out principal-and-interest loans, which have higher mortgage payments, which in turn will restrict their ability to buy more property,” she said.

Collier-Kogtevs said it was pretty clear that APRA had overshot its mark, as there’s been a significant downturn in the number of people keen to investment in residential property.

“If allowed to continue, this won’t end well for the state and federal governments because high immigration (125,000 in Victoria alone) and strained affordability will quickly lead to a significant shortfall in rental accommodation in major capitals, like Melbourne and Sydney,” she said. “This in turn will lead to massive rent increases as people clamber for the limited available stock. I believe this will happen sooner rather than later.  

“All is not lost though. All you need to do is modify your buying strategy so that the changes do not adversely impact your lifestyle and continued investing,” Collier-Kogtevs said. “You will need an expert strategist to help you do this, and that means talking to a reputable finance coach. A good finance coach will be able to help you work on a plan that will steer you through regulatory changes with minimal adverse impact.” 

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