Lenders ease conditions for property borrowers
Lenders are easing rates and conditions for borrowers in the lucrative investment property market following six months of tougher terms in response to regulatory concerns about excessive risk.
Fourteen lenders have increased loan-to-value ratios, others have slashed investor rates by up to 30 basis points, and new products are being launched priced for additional risk involved with investors.
“It’s a bit of a contrast from mid last year,” said Heritage Bank chief executive Peter Lock. “Genuine demand for investment lending exists and needs to be met. There are strong applicants demonstrating good servicing history that may find their existing bank can’t help them with an important aspect of their wealth creation strategies.”
Heritage Bank recently increased the loan-to-value ratio, which is the size of a loan compared to the value of a property expressed as a percentage, from 80 per cent to 90 per cent.
“We are well within Australian Prudential Regulation Authority guidelines and have the appetite to grow our investment lending book,” Mr Lock said.
The regulator attempted to cool investor exuberance, particularly in Sydney and Melbourne, by requesting lenders tighten lending criteria, such as increasing deposits from 5 per cent to more than 20 per cent of the purchase price.
For example, Australia and New Zealand Banking Group’s LVR for investment lending is 80 per cent while Westpac, and affiliated banks, are between 90 and 95 per cent.
FAMILY MARKETS
About 20 lenders lowered the maximum loan-to-value (LVR) ratio for investment products, typically from about 95 to 90 per cent, according to Canstar, a company that compares rates and charges for financial products.
Fourteen have since increased the LVR with some restructuring the investment product so that borrowers are paying a higher interest rate or charges.
Both falling and rising LVRs are based on a $500,000 investment loan on variable rates.
Borrowers also face tougher scrutiny on their capacity to repay, such as reviews of income from all sources, other debts, expected rental from investment properties and the impact of higher rates on family markets.
Other lenders, such as Newcastle Permanent Building Society, have reduced their investment loans by 30 basis points – from 4.09 per cent to 3.79 per cent – for a one-year fixed rate mortgage .
“We introduced a number of measures to meet the APRA guidelines that proved very effective,” a bank spokesman said.
“While remaining in line with these recommendations, the decision has been made to remove the differential pricing between investment and owner-occupied fixed rate home loans.”
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