The focus for lenders over the past month has once again been on interest-only and investment loans in response to regulatory caps on growth. There were across the board interest rate increases of 30-40 basis points for existing and new clients with interest-only repayments.
There is now a significant enough difference between the interest rate on interest-only and principal and interest loans to push borrowers towards principal and interest repayments. The interest rate saving can be up to 70 basis points with some lenders.
In respect to investment lending, several non-major banks reduced their lending value ratio on new investment lending to 50% to curb investment growth.
What has changed for investors seeking interest only loans?
The above mentioned changes are making it more difficult for borrowers to refinance their loans in order to obtain a better interest rate, particularly if they are refinancing an investment loan or seeking interest-only repayments. There is not enough financial incentive for these clients to change lenders, unless they opt for principal and interest repayments.
Lenders have continued to tighten lending standards over the past month with a particular focus on interest only loans. The tightening is a result of recent changes made by APRA that requires lenders to limit interest only loans to 30% of new mortgage lending.
The actions taken by lenders to ensure they remain within the APRA benchmark include rate increases for interest only loans and no longer offering interest only repayments on loans with a lending value ratio above 80% or secured against owner occupied properties. St George unlike most lenders will not allow any discounting on interest only loans, regardless of the loan amount and quality of the client.
Stay positive about borrowing if it is the right investment property
On the positive side, lenders are offering very attractive rates (fixed and variable) for principal and interest loans secured by owner occupied property. Lenders are also willing to negotiate better rates for investment loans that have principal and interest repayments.
The interest rate difference between interest only and principal and interest only loans is approximately 30 basis points and for this reason an increasing number of clients are choosing to change their repayments to principal and interest.
James Grima
Managing Partner – Mortgage and Finance
Omniwealth
t: 02 9112 4300
m: 0407 407 104
james.grima@omniwealth.com.au
www.omniwealth.com.au