Lending Constraints Likely To Be Short-term

Posted on 9/06/2017  
Lending Constraints Likely To Be Short-term

Leading mortgage broker Louise Lucas believes lending constraints recently mandated by the Australian Prudential Regulation Authority will have only short-term impacts on the real estate lending market.

Lucas, founder of The Property Education Company, says there is always a pause after APRA institutes a crackdown on investor lending, but the market returns to normal relatively quickly.

“I suspect it won’t be long before lenders are phoning with all sorts of offers for borrowers,” she says. “The major banks will come back in with special offers before long.”

Even following the March crackdown on interest-only loans, mortgage brokers have been  “bombarded daily” with information from banks changing their lending policies to attract new customers.

“They are paying borrowers to move over to them,” Lucas says. “Sometimes it’s $1,250 cash back if you switch your loan to them.

“A lot of the deals you will never see on a lender’s website. For example some lenders, confidentially, will waive the package fee. Perhaps there’s an annual fee of $400 associated with a loan but if you do a fast re-finance with them they’ll waive the $400 fee.

“It’s really interesting what’s out there at the moment. If you link an investment loan with your owner-occupied property, you can get the same low interest rate, perhaps 3.84%, for the investment loan, depending on the scenario.”

But some lenders are declining to refinance investment debt - to stay under the cap set by APRA.

Lucas says APRA is concerned primarily about three things:

  • Interest-only loans (“Some borrowers not paying down their loans and in some cases five years later haven’t paid a cent off their loans, which is concerning”).
  • Retirees who haven’t paid off their mortgages (“Some people will struggle to get a loan, even people as young as 40, because banks are really worried about Australians retiring with lots of debt”).
  • High LVRs

But, despite the recent restrictions in the lending market, owner-occupiers can still readily get loans with minimal deposits.

Lucas says genuine savings in the bank for three months equivalent to 5% of the purchase price is sufficient deposit for many lenders to owner-occupiers.

“On a $500,000 purchase, you may just need $25,000, depending on circumstances, as you can borrow the rest,” she says. “On a $300,000 purchase, it’s just $15,000.

You can still borrow 99% including Mortgage Insurance if you are an owner-occupier. But for investment lending you will be down to 90% including LMI. You will have to have a 20% deposit plus your costs for the major banks - although second-tier lenders are more flexible.”

Lucas says the ideal strategy to achieve the best deals is:-

  • Pay P&I
  • Borrow at 80% LVR
  • Borrow early and have a pay-down strategy

 

 

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