Join Australia's most dynamic and respected property investment community

Article - Interest Only Loans are Being Restricted

Discussion in 'Property Finance' started by miked, 18th Aug, 2015.

  1. miked

    miked Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    75
    Location:
    Melbourne
    http://www.lexology.com/library/det...=Lexology+Daily+Newsfeed+2015-08-18&utm_term=

    "Why interest-only loans are being restricted in Australia "

    "A credit assessment is carried out at the start to ensure that the loan is not ‘unsuitable’ by requiring reasonable enquiries about the customer’s ability to repay. In the light of the Cash Store decision, responsible lending practice appears to require that borrowers be assessed on their ability to repay the principal and interest payments during the “residual” period of the loan.

    Because loan repayments increase by almost 50% when an interest-only loan reverts to a 25 year principal and interest loan, this approach will significantly reduce the borrower’s capacity to borrow.

    For these reasons, it is inevitable that interest-only loans will decline as a loan product in Australia."
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,154
    Location:
    Canberra and Sydney
    Hiya

    This is nothing new.

    IO loans have been calculated like that with some lenders before the recent changes.

    Cheers

    Jamie
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,021
    Location:
    Sydney
    miked likes this.
  4. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    I'm not aware of much difficulty when an IO period ends.
    Do you think it's possible this will happen here?
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,781
    Location:
    Perth WA
    The difficulty will be if you can't service at the end of the IO period, and/or have multiple coming off IO at the same time. That will get expensive and if you know you will no longer service with your current lender, you need to have options ready - ideally, another bank to refi to, but otherwise a cash buffer, or the ability to pay P&I.
     
  6. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    I've heard it's generally a pretty straight forward extension of the IO period, are there any particular lenders to avoid who currently make it more difficult?
     
  7. sash

    sash Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    3,214
    Location:
    Sydney
    And there in lies opportunity....

     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,781
    Location:
    Perth WA
    It's getting more difficult - some lenders who used to be tick and flick are no longer. A couple that require a complete reassessment off the top of my head are NAB and Macquarie plus many of the smaller lenders, however it wouldn't surprise me to see this becoming more normal.
     
    Befuddled likes this.
  9. Befuddled

    Befuddled Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    251
    Location:
    Sydney
    Which lender(s) offer the best interest only periods, is it still ANZ?
     
  10. Redom

    Redom Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    863
    Location:
    Sydney (West) and Canberra
    CBA, Westpac, St George (although they'd reduced to 10 years for investors).

    FM, Homeloans not too bad for higher serviceability - 10 years.
     
  11. Doraemon

    Doraemon Active Member

    Joined:
    24th Jul, 2015
    Posts:
    33
    Location:
    Australia
    Do you mean that WBC offers 10yr IO for investors straight up? or just 5year term x2? and having to reapply formally every time coming off that 5-yr term?
     
    WilliamB likes this.
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,021
    Location:
    Sydney
    Actually 15 years in one hit
     
  13. Richard Taylor

    Richard Taylor Mortgage Broker & Brisbane Buyers Agent

    Joined:
    20th Jun, 2015
    Posts:
    171
    Location:
    Brisbane
    What is your definition of best interest only period.
    There is more to choosing a lender than just a long interest only period.
     
  14. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    641
    Location:
    Sydney
    St George and have changed their policy whereby they only do 15 years IO for IPs and 10 years on PPORs.

    The big question is which lender gives you the max IO period without affecting servicing. The problem is that ANZ, CBA, Macquarie all do IO periods but your borrowing capacity decreases as the IO term increases.

    You can do longer IO terms with Westpac, St George and RAMS without it reducing your borrowing capacity.

    ......and then there is the million other policies that come into play when choosing a lender.
     
  15. Marty McDonald

    Marty McDonald Mortgage broker

    Joined:
    22nd Jun, 2015
    Posts:
    228
    Location:
    Sydney North Shore and Norther beaches
    I think westpac changed this to p&i over remaining term last up date to policy. Not sure if dragon followed.

    So many changes it becomes a bit of a mine field