Lax loan assessments, interest-only and high-risk
loans are put under the microscope
THE STORY SO FAR
The Australian Prudential Regulation
Authority (APRA) has already had a couple
of goes at cooling the property investment
lending market. In December 2014 it intro-
duced a limit of 10% a year on growth in
lending to property investors. It also warned
it would not look kindly on lenders doing a
lot of high-risk lending, such as lending at
high loan-to-valuation ratios (LVR), lending
on interest-only terms to owner-occupiers,
and lending for very long terms. It asked
lenders to put greater emphasis on whether
borrowers could service their loans, espe-
cially if interest rates were to rise.
Alongside this, the Australian Securi-
ties and Investments Commission (ASIC)
reviewed interest-only loans, which led to
a number of lenders having to tighten their
requirements to pay more attention to
borrowers’ living expenses.
In April, ASIC announced it would
conduct targeted industry surveillance on
interest-only loans to identify lenders and
brokers recommending high numbers of
these loans to see whether further action is
needed. While interest-only loans may be
Regulators really get
tough on investors
WHAT IF?W Annette Sampson
L
eaving a rental property can put some
money back in your wallet. Sure, the
money was yours already but you haven’t
been able to touch it since you signed
your lease. Yes, I’m talking about your
rental bond.
A rental bond – which is usually four
weeks’ rent – is essentially a security
deposit to protect the landlord in the event
of unpaid rent or damage to the property.If the landlord or agent believes you owe
them money, they are able to make a claim
against your bond, explains the NSW
Office of Fair Trading website, which says
the main reasons a claim may be lodged
against your bond are if you still owe any
rent or have unpaid water usage bills; if you
broke the lease early and have not paid the
break fee or other compensation payable; if
you didn’t hand back all the copies of theClaim back your bond
THE CHALLENGE Maria Bekiaris
There are reasonably simple steps for tenants to follow
suitable for some people, ASIC says they
are more expensive than other loans and
for the vast majority of owner-occupiers in
particular they just don’t make sense.
In March, ASIC also completed a review
of the mortgage broking market, which
identified risky practices including con-
flicts of interest, lax assessment of expens-
es and a propensity to direct borrowers to
more risky types of loans.
APRA has also written to lenders requir-
ing them to limit new interest-only loans to
30% of their total new residential mortgage
lending. It also wants them to put strict
controls on interest-only loans with LVRs
over 80%, ensure there is strict scrutiny of
any loans over 90% and manage lending to
investors so as to stay comfortably below
that 10% cap on growth.WHAT IT MEANS FOR INVESTORS
Loans for investment housing fell in 2015
but have been rising again. The value of
investment loans fell by 1% nationally in
April but it is still too early to say whether
this is the start of a cooling in the invest-
ment market, or just a temporary lull.What we can say with certainty is that
lenders are increasingly getting tougher
on investment loan requirements. More
than half the 33 economists and experts
surveyed in May by the website finder.com.
au believe interest-only borrowers, in par-
ticular, could have problems refinancing
when their current loans mature. A further
interest-only loan will be harder to get,
and borrowers switching to principal and
interest will be hit by a hefty rise in repay-
ments, which they may struggle to afford.
For example, Finder analyst Graham Cooke
says the repayments on an $800,000 inter-
est-only loan at 4% would be $2667 a month