Following interest rate increases across both major and second tier lenders last week, the Australian Prudential Regulation Authority (APRA) has advised lending institutes to cap interest only lending at 30% of new residential mortgage lending.
Leading Central Coast Mortgage Broker Mint Equity says that home buyers should be aware of the potential impact this cap will have on overall lending.
“Over the last 12 months, APRA has introduced a number of new regulations, including the 10% cap on the increase of new investment loans by lenders, the tightening of foreign investment and changes to home loan serviceability,” said Zac Peteh, Director at Mint Equity.
“The recent increased scrutiny has been in response to a heightened risk environment, reflected in high housing prices, high and rising household indebtedness, subdued household income growth, historically low interest rates, and strong competitive pressures,” he continued.
Mr Peteh predicts that the move by APRA will result in reduced options for interest only lending and tightened loan restrictions.
“When lenders have a limit to how many interest-only loans they can provide, it means when they get close to their limit, they will stop accepting new applications. That means options for borrowers wanting interest-only residential loans may now reduce.
“By increasing scrutiny and justification of any interest-only lending, lenders will revise their serviceability calculations and tighten them to meet the APRA requirements, essentially making it harder for the borrower to secure the loan. Focus will be on the deposit saved for the property and the loan to value ratio, as well as the income available to repay the loan.
“Once these changes by APRA start to bite, say later this year (as current pre-approvals expire) it will present a subtle shift towards buyers and possible adjustments to pricing of property stock, particularly on the Central Coast considering it’s a growing investor market,” said Mr Peteh.
Despite the changes taking place, Mr Peteh urges borrowers not to panic and recommends accessing a second tier lender as an alternate option.
“As we’ve seen over the last few years, APRA intervenes when they start feeling uncomfortable with the lending market. As one lender reduces their lending volumes, another lender seizes the opportunity to pick up the clients.
“It just means borrowers need to be smart about where they source their home loan from. This is where a mortgage broker is highly valuable as they are aware of lender changes and which lender has an appetite for the loan.
“It’s worth considering second tier lenders as, from past experience, they will not be as impacted by the changes as the major banks,” finished Mr Peteh.
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