Changes the Australian Prudential Regulation Authority (APRA) have made to home loan lending are causing Australian banks to review their lending policy. This, in turn, is now beginning to have an impact on investment loans.
While many property investors are still keen to enter the market or to continue building their portfolio, there are signs that the number of investors are dwindling. However, according to a recent investor survey, 54 percent of investors are still looking to continue their investment plans, even though lenders are making it harder to secure home loans. This is attributed to the fact that many investors still view property investment as lucrative, and a smart way to build their wealth.
Of the potential investors surveyed, 70 percent said that now was a good time to invest. The majority said that they were not deterred by the recent changes to policy and pricing that many Australian lenders were choosing to adopt.
Over the last month, Australian lenders have made some notable changes to their lending policy. These changes include, but are not limited to, loan-to-value ratio restrictions, increased rates for investment loan servicing, and the removal of incentives and bonuses for investment loans. Lenders have also increased investment loan interest rates, with one lender raising its investment loan rates by .47 percent.
These changes will have an impact on all investors, but the hardest hit will be mum and dad investors, and those who are buying their first investment property. Especially when many younger home buyers are electing to purchase an investment property in an area that they can afford, and are then renting where they want to live. This then allows them to live the lifestyle that they want.
Nevertheless, the changes lenders are now making to investment loans are beginning to put off these younger buyers. Of the younger home buyers surveyed, 55 percent said the changes would affect their investment plans, whereas only 30 percent of Baby Boomers said that the changes would affect them.
Financial experts suggest that lenders need to consider who will be most affected by their changes to lending criteria and policy, and just who they are aiming to have an impact on. If the goal of lender’s is to hinder first home buyers and mum and dad investors from buying, then it’s highly likely that they’ve accomplished this. If, however, lenders are trying to lower their investment activity, then maybe they need to consider how they can have an impact on foreign and wealthy investors who have a higher level of investment activity, and typically take out more loans of greater value.
There are a number of claims being made that changes to Australian lending policy on investment loans is preventing some borrowers from getting successful home loan approval. Having a home loan application rejected can have an adverse effect on a borrower’s credit rating, which, in turn, can decrease their chances of being able to secure a home loan in the future.
To avoid possible complications, many financial experts are suggesting that potential borrowers should consider using the services of a mortgage broker when seeking to apply for a home loan, rather than approaching a lender directly. A mortgage broker can assist potential investment property buyers with their home loan applications, so they have a greater chance of approval. This is because brokers know and understand bank and other lender home loan approval guidelines, and how this relates to various personal and financial situations. With the help of a mortgage broker, if your application encounters problems, you should then be able to help you negotiate your way around these difficulties.
The mortgage brokerage industry is relatively new to Australia, beginning in the early 1990s. However, the industry’s expansion has grown significantly faster than the Australian economy. According to research there are approximately 16,883 registered mortgage brokers practicing in Australia. The industry produces over $2 billion in annual revenue, and has a predicted growth of 8.1 percent from 2011 to 2016.
Overall, mortgage brokers are said to have filled a gap in the home loan market as they provide a comprehensive service that is convenient and unbiased. They also represent a panel of lenders, rather than a lender, and can offer potential borrowers a more expansive range of home loan products. A mortgage broker can also tailor home loan to specific borrower needs, such as being self-employed or having a poor credit rating, so that potential borrowers can increase their chances of home loan approval.
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