APRA reaches out to major banks as housing credit picks up
The prudential regulator has asked the boards of major banks to confirm they’re maintaining a strong focus on lending ...
Recent changes in the vast landscape of property investment have considerably slowed down the market in the past few months—is this good news or bad news for both new and seasoned investors?
Lenders have started working within the guidelines set by the Australian Prudential Regulation Authority (APRA) in order to avoid growing their investment book too fast, which, in turn, widened the disparity between interest-only rate and principal interest rate. As a result, the property markets across the country has softened and there are fewer investors entering and staying in the market.
However, Aussie Parramatta’s Ross Le Quesne believes that things may change to accommodate the banks’ need to lend money.
The mortgage broker said: “Banks want to be lending as much as possible, right? That's how they make money.”
“Obviously, within the parameters of risk,” Smart Property Investment’s Phil Tarrant added.
Find out how lenders influence the mortgage volumes by special rates so they can attract more clients and sustain the business of wealth creation through real estate assets, and the important role that mortgage brokers play in the unpredictable markets:
What role does mortgage brokers play in the changing field of property investment?
Ross Le Quesne: [Lenders] have their standard pricing, which their existing customers get, and the advertised rates … As mortgage brokers, we can apply for pricing on your behalf to see what they're prepared to offer. I'm getting the feeling that some of them are getting … under that 30 per cent cap now with the way the rates are priced. I'm seeing slightly better pricing and you're seeing even fixed-rate pricing for interest-only.
Should investors worry about the recent changes that are slowing down the market?
Ross Le Quesne: I think, as the demand for investment loans [increase] and as there's a lot of scaremongering in the mainstream media about what's happening in the markets … that, then, perpetuates itself into reality.
You'll see [fewer] people investing … More sophisticated investors [will start] knowing the areas where they're going to invest but a lot of your mainstream investors will drop off, which will drop the level of investment loans that then opens up the pricing to invest in loans because they'll be well under that cap.
It's the same with what we've seen in regards to the growth of investment loans. The credit policies are loosening a little bit around the investment criteria because they're under that 10 per cent cap now. They want to be as close to the 10 per cent growth rate as they possibly can.
So, is this all about supply and demand—lenders offering cheap rates so they can win more business?
Ross Le Quesne: It's a hard one, because … they want quality business, so they might have a cheap rate, but then their credit criteria to actually get that loan approved is stricter than the next person… It's not that simple. It's not driven entirely by rate.
How can property investors tap into special deals without a mortgage broker?
Phil Tarrant: It's a funny dynamic … Do I need to speak to all of them individually and say, "What can you offer me … ?” Does that need to happen … at the application stage? Would a bank, if I go direct, go, "Okay, Mr Tarrant … fill out all these forms and then we'll assess it," or can I just go to them [and say], "Look, I want to borrow about $500,000 … I don't go through the rigamarole of doing all the documentation. Will you give me this rate?" Can I have that conversation with them before or is it always an after-type thing?
Ross Le Quesne: It's so much easier going through a broker.
Phil Tarrant: [There are] more people use a broker than [those who] don't use a broker these days. I think 53 per cent of all home loans [is] now originated through a mortgage broker.
How can mortgage brokers be of help to property buyers?
Ross Le Quesne: People don't want to go through the hassle of going around individually and negotiating rates. But, yeah ... people can do that … People who have the time to do that.
It's like, how much is your time worth to be able to go around and to do that … ? You might negotiate the rate, but because [you] don't have the intricate knowledge of a mortgage broker of understanding [whether the] loan [will] actually get approved and is it most likely to get approved based on their credit criteria, [then you] can just waste hours going through the rigamarole of finding the best rate, then applying but actually [getting], "No, sorry, sir, you don't qualify, because you haven't provided all your information up front."
What are the factors that can affect one’s credit score?
Phil Tarrant: If you get your credit file hit all the time by people making queries on it, that's not a good thing, is it?
Ross Le Quesne: It's one of the factors that lenders look at in what they call a credit score, but there's so many factors. There's maybe 100 factors that go into providing what your credit score is based around [the] length of employment, length of residence, whether you actually have a credit card, whether you declare you've got a credit card … There's so many different factors that go into an actual credit score and they don't tell us the algorithm. Credit hits is a big factor in that credit score, yes.
What’s your final advice for property investors?
Ross Le Quesne: [Look] at the bigger picture … Sometimes, people are focused on "I only want to deal with a big four bank," which limits their ability to grow a portfolio … You've got to be open to what is the situation in the market and what does this mean … [Take] a longer-term view on it.
I had a case where one of my more sophisticated investors wanted to get into the market and actually took a slightly higher interest rate because [of] the development potential—he was buying three blocks in a line. The development potential of that property over time was going to make him a lot more money than the higher interest rate.
Sometimes, it's just looking outside the box a little bit to say, ‘Okay, how can I secure [finance] because I know the money that I'm going to make from this investment long-term is more than the slightly higher interest cost is going to cost me?’
Tune in to Ross Le Quesnes’ episode on The Smart Property Investment Show to know more about the habits he sees among the best investors in today’s market as well as how growth in the investment industry has been enhanced by the mortgage industry in the last few years.