Investors warned as lending set to tighten further

By James Mitchell

Property investors are being urged to ignore signs of a slowing market and buy now, as 2016 shapes up to be a tough year for lending.

An award-winning mortgage broker has urged investors to buy sooner rather than later as future regulatory measures look set to make it increasingly difficult to obtain a mortgage.

A fresh consultation paper from the Basel Committee on Banking Supervision – an international committee that encourages shared standards in lending – proposes substantially higher capital requirements on investment loans, which could see mortgage rates rise even further if implemented by APRA.

The committee issued its second consultation paper on the standardised approach for credit risk in December.

CoreLogic RP Data’s executive general manager of commercial Craig Mackenzie said the paper is “extremely important” as it effectively sets out the minimum international expectations of the Basel Committee with respect to the capital treatment of a range of asset classes.

“Of particular relevance to the Australian market is the proposed new capital treatment for residential mortgages,” Mr Mackenzie said.

The proposal could affect all Australian banks other than the big four and Macquarie, who use an IRB approach to determine regulatory capital.

“The most controversial aspect of the consultation paper is the Basel Committee’s proposal to levy higher capital on a subset of investment loans,” he said. “Not just marginally higher. Two to three times higher than for a like for like owner-occupied loan.”

Responding to the consultation paper, Andrew Harrison of KeyInvest Lending Services said that despite the regulatory changes of 2015, which saw banks introduce two-tiered pricing and lift their variable rates to offset additional capital requirements, investors should buy now to avoid facing further lending restrictions.

“It would be prudent if you wish to purchase an investment property in 2016 and you think you may struggle to meet a higher deposit and/or you would rely upon the rental income to service your investment loan that sooner rather than later would be a good time to buy that investment property,” he said.

Mr Harrison has no doubt that Australian authorities will respond to higher international standards should the committee, of which Australia is a member country, votes to adopt the changes suggested in the consultation paper. 

“Behind the scenes there is no doubt we will see a further sharpening of policy surrounding the qualification criteria for investment loans,” he said. “This could be in the form of these types of loans requiring a higher deposit or instead of allowing 80 per cent of rental income towards serviceability, a lower threshold could be set.

“Even worse both of these types of changes could be implemented simultaneously which would preclude a large proportion of Australians from beginning or expanding their property investments.”

Mr Harrison, who is based in South Australia, was named the winner of last year’s inaugural Investors Choice Award for mortgage broking.

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