Loan Tip: Expect it to become Harder to Borrow (Soon!)

The markets in Australia are red hot at the moment. The demand for property is pushing up prices with the average price in Sydney jumping something like 15% in a year.


There are increasingly common news reports of the need to tighten up lending. RBA is suggesting this as are APRA.


This means that something is brewing and will come to the boil soon. Perhaps the banks even think so and are offering all these refinancing incentives now before it tightens.


What could happen?

Last time it was the serviceability assessments that were tightened up. It makes good public policy for it to get harder for investors to buy multiple properties as this will give the first home owners and owner occupiers in general more chance to get into a property of their own.

The RBA doesn't want to use interest rates to curb lending so I don't think we will see rates being increased just to stem demand for housing - it probably wouldn't have any affect anyway.

Therefore I think it will become harder for investors to qualify. It is most likely that APRA will make lenders tighten up serviceability calcs.

Get in quick.

 

Most likely they'll increase HEM tables and almost certainly assessment floor rates.

 

a cap on Debt to Income ratios too prob

 

Dammit! How long have I got? Was thinking about buying another in December.

Guessing I should move everything forward...

 

There's been a lot of talk on this lately, so I'd confidently say until the end of this month. Perhaps longer. Neither the banks nor APRA post a schedule.

 

yeah I was going to say about a month too

 

Here's a link to an article on the subject
Australia is set to restrict home loans to new borrowers in a bid to lower risks in the hot property market

 

If we were to get pre-approved within the month, would the lender guarantee the pre-approval if macroprudential policies came in?

 

Probably not. Lenders always reserve the right to re-verify pre-approvals and they generally do. I've been caught by a policy change a few times over the years.

 

what has happened in the past though is that when policy changes you are assessed on the policy at the time of application. Depends on a lot though

 

Depends on the lender, some will honour the existing pre-approval.

 

Well it has made to news.com.au:

Default fears as high debt housing loans jump

I was going to hold off re-finance my loan to start late next month. But with this news I am now asking my broker to see if we can start the process now.

 

DTI

 

They could also increase min deposits.
A min 20% would decrease risks exponentially. And exlucde many new people out of the market, so there could be FHB exemptions.

 

If second and 3rd tier and non bank lenders are included in those DTI it could restrict options

 

APRA doesn't regulate the non-bank lenders.

 

Does that mean the nonbank lenders would not be affected for a while? Did the nonbank lenders tighten up lending by themselves when APRA introduced a few measures to cool down the Sydney and Melbourne markets a couple of years ago?

 

Just wondering how this might affect those building.

Example. Say you currently live in a PPOR and have a deposit on unregistered land (registering in say June 2022)with the intention of building a new PPOR. You are going to use the existing equity in your current PPOR to get to the 20% LVR on the construction build with the intent of selling the existing PPOR upon completion. Would the banks assess you on Peak loan or end loan amount (since a reduction of DTI might reduce or inhibit this strategy).

 

peak debt

 

Likely they will be not directly affected, but they could still tighten up