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Lending changes creating distorted market

By James Mitchell
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The APRA-instigated lending changes may be hurting those who can least afford it, as investors look to offset the hit to their back pocket.

Property investors and renters will be hit the hardest over the coming months as regulatory changes drive higher investor mortgage rates and create distortions in the market.

Mortgage broking veteran and FinVu owner Gerard Hansen says that in today’s rapidly changing loan market, nobody seems to be considering the impact that rate hikes on investor loans will have on renters.

“For a $1 million loan size the interest rate repayment just increased by $2,700 per annum, or $50 per week,” Mr Hansen told Smart Property Investment’s sister publication, The Adviser.

“One of our clients with $8 million of debt has seen his repayments increase by $21,000 a year, or $450 a week,” he said. “Rents have to increase to cover this.”

Aussie Parramatta franchisee Ross Le Quesne says some of his clients have started to feel the weight of APRA’s investor lending crackdown.

Mr Le Quesne said that since the regulator announced a 10 per cent investor cap, which saw lenders up their rates and initiate a string of policy changes, clients with larger portfolios have been affected.

For a client with a $3 million portfolio, changes to loan serviceability mean they would now have to fork out thousands of dollars more to continue investing.

“Rather than a lender assessing the client at $45,000 on a million dollars, they’re now assessing them on about $86,000 or $90,000,” Mr Le Quesne said.

“Over a $3 million portfolio, that means that client has to earn an additional $120,000 income.

“People just aren’t getting $120,000 pay rises, so those people are definitely going to find it harder to continue to grow their portfolio in this current market.”

Meanwhile, APRA’s 10 per cent speed limit on investor lending appears to be taking the heat out of Sydney’s property market.

Property investors on higher LVR loans with a preference for buying in Sydney’s outer suburbs are now beginning to pull out of the market.

Ray White director Sam White said the real estate group’s Campbelltown (NSW) office has seen a 50 per cent drop in open homes in recent weeks.

“We are seeing that starting to take some sort of steam out of the market,” Mr White said. “I was talking to the guys who run Ray White Campbelltown. Their traffic for open homes was down 50 per cent from where it was because all of their investors were higher LVR investors,” he said.

“Really what you are seeing with APRA is the penalisation of first-time investors and those with a bit of equity are skating past quite easily.

“Once you start tinkering with markets in the free market, you get some perverse results.”

The latest figures from CoreLogic RP Data reveal there were a total of 2,615 capital city auctions held in the week ending 13 September, resulting in a preliminary clearance rate of 72.1 per cent.

This result indicates that clearance rates are no longer tracking higher than they were one year ago.

“Sydney, traditionally Australia’s hottest property marketplace, has recorded its 10th week in a row of auction clearance rates under 80 per cent,” Paul Liccione, eChoice's general manager of sales and distribution, said.

“Spring activity usually sustains brokers through that quieter Christmas/New Year period; however, this year as buyer sentiment appears weaker, prices in some markets [will] plateau and the effects of the investor-lending squeeze [will] begin to influence buyer and seller behaviour – spring may very well become the new winter,” Mr Liccione said.

Read more: 

Interest in outer-suburbs soars

Auction results reveal weakening markets

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How to begin investing in property

6 things you need to know about property valuations

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