And so the squeeze on investors has begun. The last 3 weeks have rung in big changes to the way lenders assess loan applications by property investors.
For some time now we have been commenting on the Australian Prudential and Regulation Authority's (APRA) concerns at the high level of investor borrowing. In March this year investor loan growth reached 10%, markedly higher than growth in the owner occupier segment and way beyond the RBA's preferred target of 6%. For this target to be achieved, lending to investors needs to fall by around 15%.
At last the banks are getting serious about re-balancing their loan books. Changes that we have seen so far include:
- a premium rate being charged for loans to property investors
- removal of special lending discounts for property investors
- a serviceability buffer being applied to all investor borrowings
- reduction in maximum lending ratios to property investors
- quarantining of other special deals to owner occupier borrowers only
Already, all of the major banks have tightened their policies in some way. We will probably see many of these changes flow through across the board. Any lenders who do not fall into line would otherwise be swamped by a flood of investor borrowers, so distorting and making potentially more risky their loan books.
Is this the prick approaching the bubble? Probably not, but it will have an impact on investor supply and that will inevitably flow through to reduced buyer demand in the property market. The bubble may not burst but the pressure relief valves have certainly been opened.
Loanscape has today released its Borrowing Capacity Index for Q4/2024. It confirms the forecast trend that borrowing capacities of Australian individuals and families are recovering from their low levels which coincided with the last of the recent increases to borrowing rates initiated by the Reserve Bank of Australia.