APRA investors and interest only changes Feb to May 2017

APRA warning to banks Feb - May 2017

APRA sent out a letter to over 100 AUTHORISED DEPOSIT-TAKING INSTITUTIONS (ADIs) such as banks and credit unions warning them they are continuing to crack down on lending especially to investors. Click here for a copy of the letter in PDF

So at Shape home loans we ask all property investors - current and looking to become one to PLAN ahead, as each bank and credit unions has different timeframe.

Which banks are effected by APRA's changes

APRA 18 month ago placed a 10% cap on investment lending per bank/credit union per quarter, else APRA will impose high capital requirement per loan that goes over. Most of the Big 4 bank are already over 8%-11% which means they will slow down their investment lending OR bring more capital to their books. Which in terms means they either stop lending to investors for a period of time or increase their rate to bring on more capital.

The smaller credit unions has a massive range, with some not even reaching 1% of investment lending; most likely due to the fact they have no advertising budget and are less well known to the general public.

Example:

CBA /bankwest roughly at 11%

Westpac/STG roughly at 9.5-10%

ANZ roughly at 6-7%

NAB roughly at 7.5%- 8%

Smaller regional credit unions roughly at 2%-6%

Me Bank roughly at 7-8%

Summary of changes APRA is potentially imposing

Reducing LVR to 80% for investors
Reducethe loan amount investors can borrow and cash out, by placing a minimum buffer of 7.5% on existing loans calculated on a principle and interest repayment.
Place a 20% discount on overtime, shift allowance and bonus; so non-base income.
Increase standard living expenses, especially for high income earners.
Reduce new interest only loans. Currently 60-65% of loans approved are interest only. APRA has advised they want this to be max 30%, so cutting half of all new interest only application ( Refinacne, conversions, extentions and new purchase)

Solutions- What you need to do NOW?

Overall please plan ahead with your broker, especially if you're looking to

1. Buy an off the plan property- the risk is the lending condition may get tougher in 3-24 month time so have buffers in place. Such as plan for a min 20% deposit ( 80% LVR) + an extra 10% cash buffer.

2. Take out equity - Do this NOW, the sooner the better as equity and cash out is getting hardier.

3. Apply for an interest only extension or convert to interest only- Best to apply for this NOW when it's still available. As APRA has limit max 30% of the lending market of any new interest only loans.

4. Buy your next investment property - Check your future2-3 borrowing capacity with your broker, as it will change the way you buy or what you buy. If your broker told you, you could buy 3 x more $600,000 purchase VS 1 x more $900,000 purchase it may change your plan.

5. Grow an investment portfolio over 2-3 investment properties - majority of investors with over 2-3 properties will have one common problem; serviceability/income. Most investor will have equity ( plenty of it as well) but they fail the income test imposed by the lenders. Speak to your broker early and broaden your acceptance of credit unions and smaller lenders, especially one with very low percentage of investors on their books.

APRA investors and interest only changes Feb to May 2017

APRA warning to banks Feb - May 2017

Which banks are effected by APRA's changes

Summary of changes APRA is potentially imposing

Solutions- What you need to do NOW?

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