If you haven’t purchased property or reviewed your home loans over the last 18 months, you might be surprised to learn about the recent changes to residential lending. Lenders have changed how much they’ll lend, who they’ll lend to and what documentation they need before saying ‘yes’ to your loan application.
This is not a complete list, but it does outline the main lending changes we’ve seen recently.
It’s getting harder to refinance investment loans
Due to APRA imposed restrictions, a lender cannot grow their investment loan book by more than a specific amount each year. As a result, some lenders – potentially those close to hitting this growth cap – are no longer accepting applications for investment refinances.
Whilst it’s not a policy change across all lenders (and we’re hoping it’s not permanent), it does highlight why you need to think strategically from the outset. In other words, you need to design a loan structure that helps you achieve your longer term property goals and not just select a lender because they have the cheapest rate at the time you establish the loan.
Interest rates are now anything but standard
The RBA may have kept the cash rate stable, but rates offered by lenders have been anything but.
Rates have always differed slightly from lender to lender, but now they also differ within a lender – based on the loan type (Owner Occupied vs Investment) and/or the type of repayment you choose (Principle and Interest vs Interest Only).
Maximum Interest Only periods have changed
A few years ago, selecting an Interest Only period of 15 years was not entirely uncommon, particularly for property investors wanting to protect future taxation benefits. However, lenders have recently tightened up in this area and many have reduced the maximum Interest Only period on particular types of loans.
Valuations for off-plan property purchases
Due to changes in the way off-plan property valuations now need to be done, a lender won’t Formally Approve your loan until the property can be physically inspected (i.e. it’s nearly complete). This just means that the loan is formally approved, loan documents are signed and the loan is prepared for settlement all within a short period of time. You can find out more about this here.
Security restrictions in certain areas and developments
Each lender retains their own ‘Security/Postcode Register.’ It is a list of developments and/or postcodes that a lender won’t lend against, or will only do so with restriction (like capping the Loan to Valuation Ratio, for example).
Each lender creates their own Security Register in accordance with their lending policy, current exposure levels and ongoing risk assessments.
As an example, if Bank A has lent money to a high proportion of borrowers to buy units in a particular development, the lender may add this development to the Security Register. This will prevent further exposure and limit Bank A’s potential should the value of units in that specific development significantly decline for some reason.
We’ve noticed an increasing number of developments and postcodes being added to these Security Registers, which can limit borrowing options.
If you want to buy an apartment in a specific complex, even if you have a pre-approved loan, it can be a good idea to have us check the Register before you place an offer. That way, you can be sure the selected Lender will allow to you borrow money for the specific property. If not, it might give you time to find another lender before placing an offer.
Whilst we’ve seen significant changes recently to the lending environment recently, our industry is one that is forever changing – perhaps that’s why we love it so much!
It’s a constant challenge to identify the changes, understand how they affect you as a borrower and come up with a lending solution that best fits you.
But it’s something we’ve been doing for a very long time now and something we’re extremely good at – just try us! 😉
