As investment activity slows, what opportunity does that present for home buyers?
The home loan environment is going through some big changes, with Australia’s banking regulator, APRA, having implemented policies to both dampen investment demand and ensure banks are holding sufficient capital against their mortgages to cover the risk of a downturn in housing values.
APRA’s policy changes have led many banks to increase home loan interest rates for owner occupier and investor loans out of cycle of the Reserve Bank’s cash rate decisions (which happen on the first Tuesday of every month except in January when the Reserve Bank Board doesn’t meet).
Additionally, most banks have placed a premium on mortgage rates for investment purposes and are also seeking larger deposits from borrowers to meet APRA’s guidelines.
Slowdown in investor activity
With the cost of borrowing money now slightly higher, there has been a slowdown in the pace of investment loan demand, which is exactly what the regulator wanted.
In September 2015 there was a seasonally adjusted $12.3 billion worth of housing finance commitments to investors, the lowest value of investor lending since August 2014. The monthly value of lending to investors has fallen by -12.8 per cent from its peak of $14.1 billion in April 2015.
The tougher policies from APRA and consequent tighter lending environment is clearly causing a slowdown in investment activity across the housing market, but other factors like the easing property market would also be contributing to reduced investor activity.
The growth in value of residential property has been evident for nearly three and a half years, with Sydney home values up 50 per cent over this period and Melbourne dwelling values up a strong 36.2 per cent. The growth in these two cities is now very mature and likely moving through the peak of the growth cycle.
Perth and Darwin are already well into their down phase with dwelling values falling by nearly 4 per cent over the past year while the remaining capital cities are seeing relatively subdued rates of property value growth. Another disincentive for investors is the fact that gross rental yields have been consistently falling as well, pushing new record lows over recent months.
Opportunity for first home buyers
In many ways, the slowdown in investor demand presents an opportunity for active buyers who may now face less competition in the market because advertised stock levels are rising. Prospective buyers looking to get a home loan may find the lending environment more confusing or complicated than it has been in the past. Banks are becoming more risk averse and finding the right lender with the best interest rate might not be as straight forward as some borrowers would expect, so getting expert advice can help you save money, time and effort.