For those interested in this article…… here is food for thought……
More money for investors only means one thing
October 25, 2016 by Jon Giaan. The Age Melb.It’s really starting to look like the market has turned.
It seems like banks are starting to ease up on investors.
Anyone tried to get finance recently? What’s been your experience?
Back in the middle of 2015, APRA split the property market in two. It was investors bad, owners good, and the banks were forced to tighten up the finance they were willing to offer investors – with higher interest rates, lower LVRs and tighter serviceability calculations.
And for a while there, it seemed to be putting the brakes on the market, bringing growth in Sydney and Melbourne back down from double-digits.
But now competition for investor loans is hotting up again, and banks are cutting chalk-board interest rates.From The Age:
Banks are being forced to cut the interest rate premium they are charging new property investors, as lenders compete more fiercely in the investor mortgage market once again.
The mortgage market was split in two last year, after banks resumed charging property investors interest rates that were about 0.25 percentage points higher than owner-occupiers, something that had not occurred since the 1990s.
Now, however, the interest rate gap is narrowing, with several banks recently lowering what they are charging new landlord borrowers.
…Dutch lender ING Direct on Friday was the latest to announce a cut-price mortgage deal for investors, offering new investors with a deposit of more than 20 per cent an interest rate of 3.99 per cent.
…AMP, which was forced to briefly stop writing new loans last year after growing too quickly, is also charging property investors 3.99 per cent if they borrow more than $750,000. That is about 0.1 percentage points higher than its owner-occupier rate promoted to mortgage brokers.
…Macquarie Group cut its fixed rates for investors earlier this month, with a three-year rate of 4.09 per cent.
Mortgage brokers say the trend is gathering pace, and the Reserve Bank observed the bout of competition in its Financial Stability Review on Friday. It played down the risks from banks targeting property investor lending, which it has previously seen as a “speculative” influence on the housing market.
These are small-fry banks, and a lot of the growth is coming from CBA and Westpac.
And what that all means is that investor lending has turned. It fell distinctly after the APRA limits came into effect, but you can now see the first signs of reversal in the charts.You’d have to think that without further APRA limits, investor lending is going to continue to pick up.
The APRA limits were artificial in a sense, and as their effect passes, the market will return to its previous direction – which was solid growth.
At the same time, average loan size is growing again.Again, we’re not back at levels we saw before the APRA limits came in, but we’re definitely on the way.
So it’s not hard to see what all this means. More investors in the market, taking out larger loans – it’s a rock-solid recipe for higher prices.
And so it’s little wonder that we’re starting to see the market heating up.
Take a look at the Auction Clearance rates for example. Right now they’re suggesting that we’re back on track towards double-digit growth!Just quietly, I’m a little disappointed. I was hoping the APRA restrictions would take more wind out of the sails. I was looking forward to a ‘correction’ or ‘consolidation’ or ‘minor downturn’.
I had a war-chest ready and was all set to grab me some bargains.
Now, I’m looking at that war-chest and I’m having second thoughts.
It’s early days, but right now, it’s not looking like the market is slowing down.
So if you’re a first home buyer or an investor waiting in the wings, I don’t have any good news for you. You can rule out a correction in prices this year. And realistically, the way the market moves, I think you can lock in accelerating growth from here through to at least the middle of the next year.
After that, we’ll be seeing what else is shaking the market.Maybe it’ll be the unwind of the apartment boom, or some bleed from the downturn in Perth.
That might give some buyers some relief.
But the APRA restrictions have done their dash. They slowed the market a little, but the market brushed off the tackle, a couple of quick goose steps, and it’s on its way again.
Is it too early to call a turn? Remember, you heard it here first.
Have mortgage conditions eased? Has the market turned?Hi MTR,
I work for Momentum Wealth. As part of our business model, we have 4 in house finance brokers who specialise in investor and development finance. We receive weekly briefings from them as to what changes are being made in the finance market.
APRA has imposed a continual tightening of credit on the big for and second tare lenders. The most recent change was 4 weeks ago, when they forced the banks to use an APRA formulated servicing criteria. This had a noticeable impact, particularly on clients with a reasonable property portfolio.
On the ground floor I am seeing a reduction in peoples ability to borrow based on the tightened criteria. For example a client of mine could borrow 1.1m on the Friday with CBA. On the Monday after the new were controls were introduced, this dropped to $525k.
Jon Giaan also noted that there has been a noticeable increase in the average holding time for property. From memory the historic average is 8.5 years. We are now at something like 12 years. I think the above has some part to play in this.
Less ability to borrow will impact we investment market, as borrowing capacity has being wound back. Owner occs will be fine.
We have something like 50 countries all trying to be in the global top 20 for bank (BASIL) lending policy and security. Australia is one of these countries. Government (and banks for that matter) don’t understand the property market. I am wary that continual tightening of lending policy to be in the top 20 will flow through to restricted lending to both the property and business market. Given the way Australia’s banks survived the GFC I am struggling to understand the imperative to be in the top 20.
Try and get funding for an apartment development from the big 4, and you will see what I mean. CBA currently wants 110% pre-sales before they will finance.
Good lending practice makes scene. A Race to the top doesn’t.
Finally Sydney will continue to grow this year. However with something like 50% of purchases being undertaken by investors, I would expect a cooling in 2018, as these people no longer qualify for a 2nd or 3rd investment purchase. An interest rate rise will be what stalls the Sydney market. We have just seen a small rate rise as banks increase margins and cover an increase in the cost of sourcing funds.
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