The next time you engage a conveyancer, it is a good idea to quiz them on their email and internet security protocols. For now this is a point of vulnerability, which if not adequately protected, could you leave you with a serious financial shortfall.Read More
And so the squeeze on investors has begun. The last 3 weeks have rung in big changes to the way lenders assess loan applications by property investors.
For some time now we have been commenting on the Australian Prudential and Regulation Authority's (APRA) concerns at the high level of investor borrowing. In March this year investor loan growth reached 10%, markedly higher than growth in the owner occupier segment and way beyond the RBA's preferred target of 6%. For this target to be achieved, lending to investors needs to fall by around 15%.
At last the banks are getting serious about re-balancing their loan books. Changes that we have seen so far include:
- a premium rate being charged for loans to property investors
- removal of special lending discounts for property investors
- a serviceability buffer being applied to all investor borrowings
- reduction in maximum lending ratios to property investors
- quarantining of other special deals to owner occupier borrowers only
Already, all of the major banks have tightened their policies in some way. We will probably see many of these changes flow through across the board. Any lenders who do not fall into line would otherwise be swamped by a flood of investor borrowers, so distorting and making potentially more risky their loan books.
Is this the prick approaching the bubble? Probably not, but it will have an impact on investor supply and that will inevitably flow through to reduced buyer demand in the property market. The bubble may not burst but the pressure relief valves have certainly been opened.
Supply / Demand Forces Also Apply in the Property Market
Tim Lawless from Core Logic RP Data has written an excellent article showing how the long awaited property development boom may lead to a potential oversupply of certain types of dwelling in some markets. For example he notes that 41% of the building approvals in the inner Sydney region are concentrated in the Waterloo-Beaconsfield area. Most of these will be multi-unit developments.
You can read Tim's full article here:
The ABC's economic commentator, Michael Janda also notes that, in spite of the prevailing myth, property prices do not always rise.
During the weekend it passed in at auction with a highest bid of $360,000. One can only hope that the original investor has not been stranded with finance at 80% of their purchase price of $1.3M. Be very careful about investing in one industry or boom towns. The cycle can turn severely in both directions.