The Australian Prudential Regulation Authority (APRA) has tightened lending policy on interest-only loans in an attempt to avoid a potential property bubble in the Australian market and manage heightened market risk. These changes require lenders to hold a certain amount of capital. As a result, lenders have started limiting high LVR investor lending— investment loans for 90% LVR and higher, in particular. These changes significantly impact the investor market. Are you looking to invest in property? Speak to Marco Scannone today at Stars Broking Services on 0405 252 808.
What is high LVR?
Loan-to-Value Ratio (LVR) is the amount you are borrowing, represented as a percentage of the value of the property being used as security for the loan. Loans with high LVR means the amount you borrow is much higher in relation to the amount of deposit you are required to have. For example, if you purchased a property valued at $300,000 with a loan LVR of 95%, this means you can borrow up to $285,000. The remaining $15,000 is what you need to save. This equates to a 5% deposit. A LVR higher than 80-90% is considered a higher risk loan and will require the borrower to ensure they take out lenders mortgage insurance (LMI).
APRA new policy
With the increased demand in the property market in recent times, high LVR financing has become a popular decision for investors. The value of Investor lending has increased by 21.7%. This increase has raised concern amongst APRA, forcing a stricter policy and regulation towards high LVR investment lending. APRA’s new policy will aim to limit the flow of new interest—only lending to 30% of the total new residential mortgage loan applicants. Currently, interest only lending represents 40% of residential mortgages. Cracking down on high LVR investment lending places restrictions on interest only lending with LVRs above 80%. Since this has been enforced, high LVR lending has fallen, indicating that buyers are now using larger deposits when purchasing their properties. As a result of the new policy, banks have lost their appetite for high LVR investment loans, as many rein in investment borrowing.
Do the APRA changes affect you?
Are you affected by the new APRA lending policy? If you fall into any of the following categories you may be affected:
- Seeking an investment loan without a 20% deposit
- Seeking an Interest Only loan
- First time investor in the market with a high LVR
- Investor with multiple properties with plans to release equity to purchase another property
How will this affect your investment financing? Contact Marco Scannone today and visit the website www.starsbroking.com.au