Special report: pain and gain for existing investors
Any pain felt by existing investors because of recent changes to lending will be determined by their personal circumstances, with some investors potentially facing an increase in loan servicing costs or a cap on their portfolio growth.
The impact of lending changes on existing investors is largely dependent on the type of loan they have entered into, the number of properties in their portfolio and their future plans for expansion, according to Smart Property Investment’s panel of experts.
Cate Bakos, the director of Cate Bakos Property, said some established investors will be more affected than others, depending on their type of loan.
“If they are in fixed-loan arrangements then they're probably in a more advantageous position in terms of not being exposed to rate increases, but for everyone else, they are facing rate increases,” Ms Bakos said.
“If people are concerned about the rising interest rates then they should really be considering some of the fixed-rate options, but they also need to understand the implications of them as well.”
The good news, according to Ms Bakos, is that there is now actually more opportunity for current investors wanting to invest in spring, since there is not so much competition for the same investment properties.
Vision Aggregation founder and partner Matthew Ivers told Smart Property Investment’s sister publication The Adviser recently that the changes to LVR policies actually benefit established investors.
“They just played right into their hands – wealthy investors with stacks of equity and income. This first round of changes from the banks doesn't impact them,” Mr Ivers said.
“It means they'll be able to buy in lower on the stock because they won't have to compete against the poor first guys that are trying to get their foot in the door.”
Momentum Wealth managing director Damian Collins said even though interest rates have gone up, they are still relatively low in the scheme of things.
“A number of the banks have increased their rates by roughly 0.27 basis points for existing investor loans but, having said that, rates went down 0.25 basis points not that long ago,” Mr Collins said.
“You’re still going to get an investment loan for generally well under 5 per cent, so it’s still quite low rates.”
The fact that some lenders now assume repayments will be principal and interest as opposed to interest-only, however, could hit those investors hardest who already have multiple properties, according to Mr Collins.
Hatch Property director Julie Cumming said the changes are essentially going to limit the amount of investment people can undertake.
“I think you'd have to say [that] anything that makes it safer is a good thing; however, I think it’s the execution and the transition that has not been thought through – the implications for people that are in the pipeline already,” Ms Cumming said.
“I think that’s where it’s harshest, and also it is a blunt approach that affects the whole nation when there are only a couple of real hotspots.”
However, Aussie Home Loans Parramatta owner Ross Le Quesne said that existing investors with a multi-property portfolio who wish to expand are set to be hit hard by the increase to repayment rates and serviceability requirements.
“It severely impacts what they can borrow for those clients who have got significant portfolios, so basically, rather than them paying 4.5 per cent interest-only and the banks used to assess them on $45,000 per annum, they’re now assessing them on about $86,000 per annum for those same loans.
“So the assessment is a lot tougher and it makes it a lot harder for those people to borrow, and to continue growing their portfolios,” he said.
Rachel Mangalon, director of Ace Lending Solutions, believes that the rate changes coming from several lenders mean that existing investors will be forced to assess their repayment abilities.
“They’re going to have to look at their affordability to make sure that they can still afford the repayments that the new interest rates are going to inflict on them,” she said.
APRA special report:
Special report: APRA tries to take the heat out of the market
Special report: APRA changes to meet with mixed success
Special report: first-time investors hit the hardest
Special report: investors unfazed by lending changes
