The way Australians borrow to buy property may have just changed for good. This is thanks to new rules from the Australian Prudential Regulation Authority (APRA) – the official body in charge of regulating the financial services industry.
In a 31 March media release, they detailed measures that aim to reinforce sound lending practices in order to limit risk lenders are exposed to. What are these new rules and what could they mean for your Melbourne home buying aspirations?
What are the new laws?
The main focus of the new rules is to limit high risk lending practices by banks and other lenders. This includes the limiting of interest only lending to only 30 per cent of total mortgage lending and the placing of strict limits on the volume of high LVR interest only lending. APRA has also requested banks manage lending to investors to remain below the 10 per cent growth benchmark.
Furthermore the new rules recommend reviewing all loan serviceability metrics and ensuring adequate interest rate and income buffers are in place. Perhaps most worrying for the owner occupier and first home buyer market is the requirement that lenders restrain lending growth to borrowers with high loan-to-income ratios, high LVRs and long loan terms.
How might they affect homebuyers?
Many everyday Australians will be affected by these changes. First home buyers and those with less resources are likely to be hit hardest, as lenders look to increase scrutiny on high loan-to-income ratio lending and potentially require larger deposits.
This doesn’t mean that buying a home is impossible, or even more difficult. It just requires an alternative strategy, developed with the help of a real estate agent you trust and a professional mortgage broker.
Investors may be hit the hardest
Roughly 66 per cent of Australian property investors are negatively geared.
Roughly 66 per cent of Australian property investors are negatively geared, Reserve Bank data shows. APRA’s new rules propose more than halving this number – a move that’s sure to require countless investors change their tact.
Now that lenders will be cutting back on interest only lending, investors may need to move towards more cash flow positive property. Find the right real estate and you can make this change without hurting your investment’s bottom line.
These changes will certainly challenge Melbourne homebuyers and investors. However, with the right advice and a sound strategy they needn’t stop you from achieving your property aspirations.