The availability of credit played a major part in slowing down the Sydney and Melbourne markets (and prevented others from stronger growth).
We are now seeing a gradual easing of restrictions on credit creating a bit more positivity around the availability of money (even at the investor level). Not only have banks like the Big 4 increased the percentage of lending they will allow on investment properties from 80% to 90% on an interest only basis; they have also increased their interest only periods – some like the ANZ up to 10 years.
Only 3 months ago, there were only 2-3 lenders in the market that would lend 90% on an investment property on interest only terms, and their interest rates were substantially higher than they are today. Presumably capitalising on their market share while the others couldn’t due to the restrictions APRA imposed on lenders that were deemed too heavy on investment lending.
APRA is an independent statutory authority that supervises institutions across banking, insurance and superannuation and promotes financial system stability in Australia.
On the 19th of December 2018, APRA removed the 30% investment cap it forced upon the banks in March 2017. The introduction of the benchmark has led to a marked reduction in the proportion of new interest-only lending, which is now significantly below the 30% threshold (around 17% according to the RBA).
On the 1st of January 2019, APRA also removed the interest only cap of 10% they had on the banks. So, given this it is not surprising to see the banks eager for your investment business once again.
Remember to speak to your specialist investment finance broker who will consider lender policy, valuations, loan structure and interest rate when deciding on your lender.
We now have banks with 3.69% investment IO fixed rates to 90% LVR and 3.49% variable Principle and Interest on owner occupied properties.
We also have 3 banks with 3.99% 2-5-year IO investment fixed rates to 90% LVR and many more at the 4.1%-4.2% level for the same.
This is at least 0.3-0.6% cheaper than just one month ago.
Locking away for 3-5 years at this rate is great for certainty in cash flow on investment properties and should assist the buying decision, especially if you buy in the right markets which have good yields (5%-7%) and great growth forecasts (6%-10% p.a.).
With most economists expecting the Official Cash Rate to be cut once or twice this year, we expect to see more lending institutions compete for investment business in 2019.