It seems the property investment market will be a highly competitive space again, following APRA’s decision to slash rates on interest-only investment loans by 30 basis points. Australian consumers and investors have waited patiently for lenders to drop their rates and improve their terms, with this move triggering speculation other lenders will begin to reduce their investor rates in order to stimulate demand and boost profits.
The Australian Prudential Regulation Authority’s decision to lift lending caps on borrowers stems from their announcement that their 2014 lending cap had served its purpose. With the initial cap limiting growth in lending to housing investors to 10%, Steve Lusi, Director of Direct Property Group suggests this plunge will boost investors’ confidence in property due to lesser penalties.
Although investor housing finance commitments had plunged by nearly 18% below peaks following higher mortgage rates to investors in February, Melbourne and Sydney investor lending remained strong accounting for more than 44% of total new lending, well above the long-term average of 34%.
Both investors and home owners will be reprieved from the cut, with leading mortgage lender Suncorp announcing they will reduce interest-only investment loans on two and three year rates between 20 and 30 basis points with fixed rates of 4.34%. Other lenders are easing their conditions and lowering their rates and fees, with UniBank and Firefighters Mutual Bank reducing minimum monthly surplus for residential investment loans for both principal and interest and interest-only from $1000 to $300.
While investment opportunities will begin to rise, the removal of the cap will be offset by tightening in lending standards, with APRA wanting banks to set internal limits on the proportion of new lending they do to borrowers with very high debt-to-income, and to set limits on maximum debt-to-income levels for individual borrowers. Lending standards will be kept strong with these more permanent measures.
With interest-only loans making up 60 to 70% of investor loans and 25 to 30% of owner-occupiers taking out interest-only loans, the APRA were faced with the dilemma of avoiding restrictions to the property market’s ability and the potential opportunity for new stock to be absorbed. Investors will now no longer be restricted and competing as hard against each other, instead capitalising on the demand in the market. To learn more about the APRA’s decision, get in touch with us to discuss the effects of the slashed interest-only rates within the Melbourne investment property market.