Changes To The Australian Mortgage Industry

The federal regulator is currently implementing major and unprecedented changes to the Australian mortgage industry. Given governmental concerns over the booming property market, particularly in Sydney and Melbourne, a range of rules are being introduced that specifically target investment loans APRA (Australian Prudential Regulation Authority) is the department that is implementing these changes. APRA has mandated that Financial Institutions must not grow their Investment Loan portfolio by more than 10% this year. This change seems harmless but current demand is running much higher than 10%. Many of our banks and other financial institutions are already very close to, or over, this 10% growth limit. Some lenders have recently reached and exceeded this 10% threshold and one lender in particular has just announced that they will not be able to offer investment loans until they get back under the threshold. How does this impact you? If you have an owner occupied home loan that is set up with principle reducing repayments, you will not be impacted by these current changes. You may even benefit as banks try to attract more owner occupied loans, with greater competition potentially leading to reduced interest rates. However, if you have an existing variable rate investment loan, you may receive notification from your lender that your interest rate has increased. If you have a variable home loan or investment loan with "interest only" repayments, you may also receive notification from your lender that your rate has increased. Exactly why some lenders are lifting rates for existing clients is hard to confirm, however, the major lenders have been asked to set aside approximately 50% more capital by the end of this financial year. This new policy is going to make our financial institutions significantly stronger but it will increase their costs. The cost of this additional capital will be passed on to borrowers. This current rate hike may be the first step in this process. Every mortgage holding client has a unique set of circumstances that may require a unique strategy. If you are looking to buy an investment property, or have received notification of a rate increase or wish to discuss any of the above in relation to your current loans or future plans, please don't hesitate to contact our office.