Special report: first-time investors hit the hardest
First-time or beginner investors are going to be hit the hardest by the recent changes to investor lending instigated by APRA, according to multiple industry professionals.
The change that will make it most difficult for first-time or beginner investors is lenders dropping loan-to-value ratios, meaning a larger deposit is required to secure a loan.
Damian Collins, managing director of Momentum Wealth, said a lot of the banks now demand a bigger deposit to get a loan approved.
“Some of the lenders are only going to 80 per cent loan-to-value ratios now so it’s definitely going to make it harder for investors to get into investment property,” Mr Collins said.
Cate Bakos, director of Cate Bakos Property said the dropping of LVRs by a lot of lenders will mean investors who are starting out will suffer because they don’t have any equity behind them to draw on.
“Ideally for an investor, when it’s a business purpose loan or an investment purpose loan they'd like to be borrowing the majority, if not all, of the funds so there’s a major disadvantage there for anyone who isn’t equity backed,” Ms Bakos said.
“It’s certainly bad news for the investors that might have recently purchased longer-term properties, such as off-the-plan, because the implication for them is it’s uncertain how they'll be able to finance those properties when it does come time to settle,” Ms Bakos said.
Jason Back, managing director of the Australian Lending and Investment Centre, explained that while his existing clients were unlikely to be affected, first-time investors priced out of ‘safe’ markets now faced a high degree of difficulty.
“For those investors looking to get into off-the-plan or house and land packages they might be looking at positively geared plans because they don’t have deposits, it’s going to be much more of a struggle for them to get into the market at this stage,” he said.
While he acknowledged that changes to LVR requirements may hinder investors’ initial plunge into the market, owner of Aussie Home Loans Parramatta Ross Le Quesne believes that new investors have emerged as the least impacted by the lending rate changes.
“Obviously they don’t have the exposure to the levels of debt that an investor would already have, so most people should still be able to afford to get one or two investment properties, so it shouldn’t affect those types of borrowers. It’s once you get up to multi-millions that they’re going to hit that capacity hurdle,” he said.
Hatch Property director Julie Cumming said the changes are going to restrict a lot of first-time investors and it’s going to mean that people at the lower price point will struggle.
“It’s terrible for people who have bought off-the-plan and when people are trying to self-fund their retirement and get themselves ahead it’s a bit of a brutal approach,” Ms Cumming said.
Vision Aggregation founder and partner Matthew Ivers told Smart Property Investment’s sister publication The Adviser recently that the changes haven’t been thought through very well.
“Where it hurts people most [is] the people with the smaller deposits that have gone and bought their home, it hurts the people who are struggling to get into the market, not the people with strong incomes and strong equity,” Mr Ivers said.
“These changes hurt younger people trying to get into the market, which is hard enough anyway. They're effectively being wiped out by this strategy, which I think is very hard and unfair. I think there could've been much better ways to do it.”
APRA Special Report:
Special report: APRA tries to take the heat out of the market
Special report: APRA changes to meet with mixed success
