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Australia’s strong property market, particularly in Sydney and Melbourne, is being contained somewhat with APRA’s recent changes aimed at tightening up investment lending, and it could make many pre-approvals void.
The changes are designed to prevent the market from boiling over, bringing it back to a more sustainable simmer, and the focus is on investment lending so owner-occupiers won’t be affected.
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Brokers should be aware that many lenders have already responded to APRA’s changes and some will only lend up to 80 per cent LVR on investment properties. This means that any pre-approved investment loans with an LVR higher than 80 per cent may no longer be valid. Brokers should contact clients who are pre-approved for investment loans and ensure that they have a valid pre-approval.
If any clients are interested in refinancing their investment loans, this should be done as soon as possible, as there may be further tightening on investment lending. If a client has an investment loan at 85 per cent LVR, they may have previously been able to unlock equity equivalent to 10 per cent LVR, taking the loan up to 95 per cent LVR. However, the new changes mean that a borrower with an 85 per cent LVR investment loan may not be able to refinance.
Overall, these changes should be viewed as a positive move for the market, as they can prevent or delay the ‘bursting bubble’, and it reverts back to lending fundamentals in which investment loans are riskier for lenders than owner-occupier home loans, and are priced accordingly. At 1st Street, we have reviewed all pre-approvals and contacted all relevant clients. In one case, we switched lenders for a client’s proposed investment loan just in time and the purchase was able to proceed, so early action is key.
