Investor borrowers will find it more challenging to secure finance in the coming months when we'll see tighter lending criteria, predicts Joe Sirianni, executive director of Smartline Personal Mortgage Advisers. He says lenders of all sizes are heeding the warnings of the Australian Prudential Regulation Authority about the need to slow investor credit growth.

“As a result, we are now seeing lenders starting to actively raise the bar in terms of the requirements investors have to meet in order to secure finance,” he said. “Many of them are looking at how they can rebalance their loan portfolios and keep investment loans to 10% of their loan book, focusing their efforts on the owner-occupier market. This could prove to be an issue for some investors, particularly those who were looking to aggressively grow their portfolio with cheap finance.”

Sirianni predicts that most lenders will start to restrict and reduce the number of Interest Only loans (which are primarily used by investors) in the coming months, as they become more concerned about investors managing their mortgages, and we may see postcode weightings where investment properties purchased in ‘hot’ Sydney and Melbourne markets will have a higher assessment rate applied to them.

One major bank recently announced it was using tougher tests when determining the ability of investor borrowers to repay the loan at higher interest rates (known as the assessment rate), raising this benchmark rate from 6.8% to 7.1%. This same bank has also introduced a “floor” under how low the assessment rate can be, which is also 7.1%. Despite the May cash rate cut by the RBA, this 7.1% rate still applies and would do so even if rates fell further. Sirianni said he expected to see other lenders introduce more rigorous servicing criteria in the near future.