Finance advice
Cate Bakos

How changing bank policy affects investors and tenants

By Cate Bakos

Just over two years ago, APRA stepped in with some tough measures in an effort to reduce the amount of investment lending by our Australian banks. The roar was loud and the changes were noticeable.

Investors quickly felt the brunt of the banking policy changes and all of a sudden, we saw investor budgets reducing, lending rates being hiked up for investment lending, and in some cases, investors being locked out of the market altogether.

At the time, APRA’s desired outcome seemed so unlikely and it was hard to imagine how they’d reduce the lender’s activities to a mere 10 per cent of new investment lending. Little did we know how tough the policy changes would continue to get.

Fast-forward two years and we now see some varied but tough policy conditions out in the marketplace from our lenders, and the imposed conditions have been quite pivotal across the broader property market.

Buyer numbers in the eastern state capital cities have continued to be strong (relatively speaking when benchmarked against prior years), but the mix of investors to owner-occupiers is what has changed, as is the energy and appetite of investors at the coalface.

Not surprisingly, our strongest auction results we’ve recently witnessed have been fuelled by owner-occupiers and investor caution has been palpable. Investors who have remained eligible buyers in the property market have had to flex around and adapt to the increased lender scrutiny.

From tougher imposed conditions on expats to higher-than-actual servicing calculators (lender systems for modelling the cost of servicing the loan), higher interest rates on interest only loans, tighter loan to value ratio limits and restrictions on equity releases, limits on portfolio sizes, and lastly the need for investors to be able to demonstrate that they can cover the cost of both principal and interest repayments at a higher-than-current lending rate, the cards have certainly been stacked against investors.

And that’s not to mention valuation shortfall risk, lender rejection of specific securities (properties used as collateral for the loan), and developer liquidation risks.

Whether these changes to investment lending are a good thing or a bad thing carries varied sentiment. Clearly, we need to be confident that investor sentiment isn’t driving up property prices to the detriment of owner-occupiers, but we also have to consider the effect of limited investor activity on existing investors, developers and tenants.

For the first time in our major eastern capitals in a while, we have had a renewed pressure on rents and a shortage of rental properties in many suburbs.

Rental stress cannot be underestimated and we can anticipate that the resultant effect of this new imbalance will be higher rents and tighter vacancy rates, but also rental stress and affordability concerns for those who are most vulnerable in the housing market.

For current investors (particularly those who have numerous properties in their portfolio), the need to be mindful of changed conditions as their loans exit from interest-only is imperative. The inability to service heightened repayments could be disastrous for those who aren’t prepared.

Like times before, this cyclic balance between rental yield and investor acquisition activity reminds us how tightly bound all of the dynamics are in the world of property investment.

Now, more than ever, is not a time for investors to be nonchalant about lending criteria or borrowing capacity. It’s tough out there for investors and having a trusted finance advisor is absolutely critical.

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About the Blogger

Cate Bakos

Cate Bakos

Cate Bakos is an independent buyers advocate, a qualified property investment advisor, and owner and manager of Cate Bakos Property.

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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    • Why Brisbane is a good investment option right now<\/li>\r\n
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1202 (52) {
  ["id"]=>
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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