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APRA’s various lending restrictions have hit investors’ ability to get finance, but how else have they been affected?
With multiple caps in place that restrict investors over the last few years by the prudential regulator, investors need to keep in mind that the banks have to make to make sure they stay below their caps, which can hinder investors further.
Speaking at a panel hosted by financial planner Fox & Hare Financial Advice, co-founder Glen Hare, who also worked at Macquarie Bank as an associate director, said he has observed how banks have tightened on investor lending himself.
He said that due to the banks having a 30 per cent cap of their total loans being interest-only loans, investors looking to make deductions on interest may find themselves having to pay off their loan sooner than expected, which “reduces some of the attractiveness”.
Another aspect that Mr Hare is seeing a lot more of is scrutiny around servicing debt.
“So, it used to be, you would complete your income expense, and you say: ‘Oh, I've spent nothing, I'm a really good proposition,’ but now, the banks are starting to look at … the transactions on bank statements,” he said.
“They're actually saying: ‘This person says they spend $200 a week,’ but if they're out spending $1,000, they will actually rely on that statement when looking at the serviceability of that loan, and this is all to help, obviously, the stress that we're seeing in the property market over the last couple of years.”
These statements correlate with findings announced in a report by the Australian Competition & Consumer Commission, which found the major banks’ inaction on competition between each other and attempts to stay within APRA’s limits resulted in investor rates remaining high without any chances for lower rates.
“Overall, APRA’s prudential benchmarks have impacted the scope for ADIs [authorised deposit-taking institutions] to compete on price for residential mortgages for investor and interest-only borrowers as any offer of interest rates below those available from other lenders may attract too many new borrowers and put the ADI at risk of non-compliance,” the report said.