call us now on (08) 9289 7777

APRA changes – what are they and what do they mean for me?

APRA changes – what are they and what do they mean for me?

APRA (Australian Prudential Regulatory Authority) has demanded some changes to the investor lending parameters associated with Australian banks’ growth rates. Essentially, new investment loan approvals will slow to less than 10%.

The catalyst for this change is the increased investment in Australia’s property market, driving price growth of all property across Australia, in particular Sydney and Melbourne. This brings associated problems relating to affordability, and is exacerbated by a record low interest rate environment.

The latest catchphrase for those involved in the finance and property industry is “macro prudential regulation”. The record low interest rate has been a result of Reserve Bank of Australia (RBA) decision to reduce the cash rate, in order to increase Australia’s competitiveness on a local and global scale.

Australia relies heavily on its exports and a major factor influencing exports is, from a price perspective, how competitive we are relative to other counties. The Australian Dollar plays a pivotal role in determining this outcome. As the value of the Australian Dollar falls, our exports become cheaper on the global market. Hence, further potential interest rate cuts are likely. Ultimately, this will drive our currency down, making our product and services more competitively priced globally, from exports through to tourism.

Unfortunately for the RBA, the result of lower interest rates does little to slow property price growth – which is currently a major concern. If anything, it has the opposite effect, as lending becomes more affordable from a consumers viewpoint and credit activity is stimulated. The RBA is faced with the difficult task of trying to control and influence the economics and overall state of business within Australia. This is very complex in nature, as their objective is to ensure the nation’s sustainability across several different areas. The trade-off in stimulating exports and other aspects of the economy, is that the property prices in Australia are seeing record growth. This is due to higher borrowing capacity, which is a result of lower interest rates. In addition, we have also seen an increase in our overall housing debt and record number of borrowers on interest only repayments.

APRA decided to review the bank lending parameters last year. Hence, APRA is now implementing different measures to counteract the effect of RBA’s decision to reduce interest rates.

So, you ask, what does this really mean for you?

In short, a lender that has helped you with your lending in the past, may not currently be able to assist you the same way. Banking and financing professionals who have the expertise are likely to become more important than ever.

Despite these changes to lending parameters, we must not lose sight of the fact that banks are determined to drive shareholder returns. Margins are being squeezed by tighter restrictions, so banks have decided to offer less competitive pricing for investment loans, and stricter criteria relating to interest only loans. Navigating the way in which each bank’s policies differ, and dealing with these changes, will prove vital to borrowers and the outcomes which they strive to achieve.

Will you be affected? See the checklist below to find out:

  • Have you been considering refinancing your investment loans to take advantage of lower interest rates?
  • Have you been considering buying an investment property with less than 20% deposit?
  • Are you trying to maximise your borrowings?
  • Have you or are you considering buying an off plan property?
  • Are you a foreign investor?

If you have answered yes to any of the above, then we suggest you speak to one of our qualified and experienced finance executives, as you are most likely going to be affected by the changes that APRA is implementing. Whilst the major banks have already started to change their policies, a number of other lenders still have policies to suit your needs.

Don’t wait, engage a professional to assist you as soon as possible.