A number of lenders are reporting that borrowers are informing them that they are now living in their investment property, making it an owner-occupied home, which changes their investment rate.
After the Australian Prudential Regulation Authority (APRA) introduced legislation that Australia’s big four banks would be restricted to a 10 percent investment lending growth margin, the banks raised investment lending home loan rates. For the first time in 25 years, investment lending and owner-occupied loans had different lending rates, with investment loans being almost .50 percent higher in some cases.
How Has This Change Affected Borrowers?
Some borrowers are said to have been caught-out by the change in lending policy as they have been living in a property that was once rented to tenants. This is because they have failed to contact their lender and notify them that they were now an owner-occupier of the property.
The banks said there was little incentive for these borrowers to notify them of their change in circumstances, as an investment and owner-occupier home loan were basically the same product. But now these home loans have been differentiated by interest rates, a large number of borrowers have come forth to prove they are in fact an owner-occupier.
How Has the Number of Owner-Occupiers Affected Banks?
According to sources in the banking sector, this trend was growing with more owner-occupiers wishing to change their investment loan status. This, in turn, will weaken the rate of investor loan growth which had been previously published in statistical data. This brings statistical data on investment lending into disrepute.
In addition, the Australian New Zealand (ANZ) banking Group and National Australia Bank (NAB) have reclassified billions of dollars in home loans into owner-occupier or investment. Now, due to this trend, these banks are having to change these classifications. This, in turn, highlights the complexity of the banks internal system and how difficulties can arise when lending policy and changes are implemented.
Brokers are also fearful that some home loan holders are paying too much for their home loans as they, themselves, had been caught-out by the changes their bank had made to investment loans. In fact, a number of brokers have said that they had bought an investment property and that they had moved into their property a number of years later, but had not notified their bank of this change. These brokers said that they were fearful that other borrowers may be doing the same, and not know that they’re paying more in interest as a result.
This is attributed to the fact that many home loan holders have a set and forget philosophy when it comes to home loans. So when rates change on their home loan they often don’t notice because they often don’t know what their home loan interest rate is or review changes to this rate.
Banks are expecting that the APRA changes to investor lending will see a reduction in investor portfolios, and in the number of investor loans they currently have, which may alter existing growth in investor loans. Banks are also anticipating that some investors will turn to non-bank lenders for investment finance.
What are the Alternatives to Non-Bank Finance?
If you’re an investor who has a home loan with AMP or one of Australia’s big four banks, ANZ, NAB, Commonwealth or Westpac, then you can look at refinancing your home loan with a non-bank lender. Non-bank lenders include building societies and credit unions, and these lending institutions have a vast range of home loan products at very competitive prices.
The most cost-effective loan on the market, at present, for investors is around 4 percent, with minimal fees and charges. Of course, before you refinance it is important for you to calculate your costs and to ascertain whether or not its viable for you to switch lenders. This means adding up all fees and charges for your new loan, and then working out if you’ll incur any early exit fees from your existing loan.
How Do I Change My Home Loan From Investor to Owner-Occupier Status?
If you have an investment home loan with AMP, ANZ, NAB, the Commonwealth or Westpac, due to buying the property you currently live-in as an investment, then you need to contact your lender. Your lender will then ask you to provide them with proof that this is your main place of residence. This may mean providing them with utility bills in your name at this address, them citing a change of address notification on your driver’s license, as well as producing other documents that prove you reside at this address.
Once your lender has verified the property is in fact your main place of residence, they will then make changes to your loan status. This shouldn’t cost you anything, but you need to ask your lender if any fees or charges apply before making any changes.
Do you want to know more about owner-occupier and investor home loans? If you said YES, then it’s time to contact eChoice. We can help you save more.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!