Big changes in investor lending
Like me, you’ve probably been following the monthly median price results for property markets around Australia with keen interest.
What a difference a year makes! If you cast your mind back to this time last year, we were faced with a vastly different environment – monthly declines, very low levels of activity, a blow-out in time on market and vendor discounting rates… it wasn’t pretty.
Now, house prices are on the rise once more, especially in Sydney and Melbourne, and agents are reporting fierce competition among buyers for quality stock. Things are moving quickly, plus interest rates are lower.
Buyers are in a prime position, but it’s especially true for property investors. In fact, this might just be the best time in a long while to be buying an investment property.
Banks are bargaining for business
Data out in October showed that lending to property investors fell on an annual basis for the first time since they started keeping records about such movements.
It was a modest contraction on the face of it – 0.1 per cent over the 12 months to September – but not insignificant. The figure is a measure of investor activity and confidence at a time when major markets, especially in Sydney and Melbourne, have seen some five consecutive months of growth.
Bureau of Statistics data for September shows a four per cent fall in new loans for property investors, too. It’s all a bit patchy though – some markets are seeing investor loan growth one month, then a decline the next, while others are more buoyant.
None of this is entirely shocking though. The end of the boom and a period of price correction from late 2017 until the middle of this year has left investors rattled. Some are sitting on their hands. Some are more active. It’s a bit of a yoyo.
You can’t blame investors for being gun-shy though. A crackdown by the financial regulator on bank practices, as well as lending for investment properties, also had a pretty major impact over the past few years.
All of this downward pressure on business, coupled with the devasting revelations from the banking royal commission and the PR nightmare that followed, means banks are keener than ever to secure themselves a bigger piece of the pie.
They’re pulling out all the stops to attract the potential customers that are active. For would-be investors, it spells very good news.
Just look at what Westpac has been up to lately.
Westpac angling for borrowers
Late last month, Australia’s biggest lender for property investors announced a fairly significant shift in policy.
Westpac slashed its required loan-to-value ratio for property investors on interest-only loans in half, with just a 10 per cent deposit required.
That means a stack of prospective landlords can get their foot on the ladder, or on another rung, sooner thanks to requiring a small deposit via savings or equity.
Westpac has also just announced a change to how it examines a borrower’s expenses, via what’s known as the Household Expenditure Measure – or HEM. It will now deduct the costs of maintaining an investment property, including the interest payable, deducted from gross annual income and projected rental income.
As a result, many people applying for a loan for an investment property could see their borrowing power improve.
Westpac is the biggest lender to property investors and it’s obviously keen to keep it that way. But no matter where you look at the moment – big banks, smaller banks and non-bank lenders – everyone is vying for landlords.
Good deals, but shop around
There are plenty of investment loan products being advertised at the moment with very appealing interest rates that begin with a two.
But not all loans for landlords are created equally. Latching on to the first, seemingly good deal you find can be a mistake.
Some come with a range of features that cost a pretty penny but that many might never utilise. As a result, you’re shelling out establishment and annual fees, or paying a slightly higher rate, for things you don’t want.
On the flipside, some investors take on no-frills products that leave them without the flexibility their circumstances require. And, of course, there are some who are lured by ultra-low fixed rates that, in the long run, don’t end up being a good deal.
It’s important to consider every aspect of your personal circumstances to find a loan that’s right for you, your investment property and strategy, as well as your budget.
And the non-bank sector is growing rapidly as well. Non-banks are governed by different rules and therefore can sometimes be a little more flexible in terms of what you may be able to service with them.
We have a very strong and growing non-bank portfolio as well as 2nd and 3rd tier lenders as it’s the competition of all these forces that is now delivering Australian consumers more choice and greater benefits.
Well, one of the 1st things that non-banks don’t have is an expensive branch network that they need to maintain. Accordingly, they can pass on rate savings to consumers.
And who goes into a bank branch anymore anyway? The banks are closing branches left, right and centre and yet still cannot compete with our non-bank sector.
This is great for consumers and the thing that you must remember is that your lender is a commodity. They simply have something that we all want – Money!
Otherwise, they are just another banner that delivers us what we need to continue on our investing journey.
There are some great incentives to buy now, banks and non-banks are actively competing for business which is good for Australian consumers and for the 1st time in a while, they are looking to find a way to lend. All good news!
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The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.