APRA has hinted at the possibility that they may be ready to remove caps on home loans for investors since the recent improvements to mortgage lending standards and investor loan demands.
Wayne Byres, APRA chairman, has said that the 10 percent restriction on banking lending to property investors was “probably reaching the end of its useful life”.
By rescinding the cap, its possible that the pressure on mortgage rates for investors could diminish. The introduction of the cap forced banks to increase their rates in order to stay within the limit. This could no longer be a requirement. Which means that banks are able to write more investor loans which, in turn, boosts credit.
Byres explains that due to better mortgage lending standards and a lower demand for investor loans, the 10 percent restriction is potentially no longer necessary.
Investor loans have declined to below 5 percent, which is at 50% of the cap. New interest-only lending is now at about 20 percent, which is a third of where it was.
Byres has said that there is still work needed before APRA can formally say they are comfortable but they have seen huge improvements in the way the industry is writing business in the last few years – the standard of quality has improved dramatically.
Before we find out when they plan to remove the cap, APRA will need to hold further conversations with the Council of Financial Regulators.
Though they are looking at relaxing this restriction, other key lending restrictions will still remain in place, such as the 30 percent interest-only limit on new loans issued.
Six months after the 30 percent interest-only limit on new loans was issued prices of homes across major East Coast locations started to fall. Byres has said that they want to see how and where the industry settles before looking at also relaxing this restriction. So we can expect this one to be in place for a while yet.
Why did these APRA changes happen?
In December 2014, APRA was given permission to intervene if an individual bank increased their investor lending by more than 10 percent in a 12 month period.
They, along with the Reserve Bank of Australia, had increasing concerns about the banks’ poor lending standards, as well as many unpredictable factors in the property market.
Banks have been under scrutiny from regulators in recent years. This has resulted in them having to re-assess how they evaluate a customer’s suitability for a loan, which is based on factors such as annual earnings, debts, expenses, and sensitivity to higher interest rates.
APRA have been slammed for being too blunt and for creating additional tax deductions for property investors.
With news that they are now looking to relax some of the restrictions, the future doesn’t look as bleak.
Madhu Ramana from Zinger Finance says, “I believe the majority of property owners are going to benefit immensely from the proposed changes. Everyone who owns property right now should be approaching their respective Finance Strategist to qualify themselves so they are able to cash in the minute the floodgates open. In essence, you have got to be in it to win it.”
Do you need to talk to someone about your finances in light of this news? There’s never been a better time for a financial health check!