If there is one topic that’s top-of-mind for property investors right now, it’s the tightening of lending criteria, and with the Banking Royal Commission ongoing, it’s making even the most successful property investors quiver in their well-heeled boots.
But what’s the reality behind the crackdown on lending and how does it really affect the everyday mum and dad investors out there?
To understand the way forward, it’s important to understand firstly how we got to where we are now. This takes us back to late 2014 when Australia’s banking regulator, Australian Prudential Regulation Authority (APRA), and the Council of Financial Regulators, introduced a series of macro prudential policies which have resulted in changes to lending.
‘APRA acted to curb excessive lending and to cool an over-heating housing market, particularly in Sydney and Melbourne,’ DHA’s Chief Economist Dan Carton said.
‘Over the course of the next three or so years APRA’s actions operated to limit mortgage lending with the aim of ensuring the stability of the Australian economy and limit speculation in the residential property market.’
For the everyday investors this meant that it became harder to get a home loan and for others it may have meant that they couldn’t borrow as much as they had previously thought. Other investors have seen their rates rise above those paid by owner-occupiers.’
In a recent speech to economists in Sydney the APRA Chairman said that 13 of the country’s largest banks had passed ‘severe but plausible’ stress tests and that further changes would be marginal.
‘Any tightening from here on is expected to be at the margin as banks seek to get a better handle on borrower expenses, and better visibility of borrower debt commitments,’ APRA chairman Wayne Byres said.
‘Anecdotally, we’ve had some investors pull out of sales as their finance pre-approval has shifted,’ Mr Carton said. ‘But generally the more reliable rental income from the DHA property investment program could be a safer proposition for a lender.’
Investment is subject to conditions of sale. Under the DHA lease, lessors retain some responsibilities and risks, i.e. rent, make-good and market fluctuations. Prospective investors should seek independent advice. See dha.gov.au/lookforward for relevant information. Rent is subject to abatement in limited circumstances.
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