Property investors to see ‘new norm’ in lending: mortgage broker

Further, the Australian Prudential Regulation Authority (APRA) changed its home lending guidance so that it will no longer be necessary to assess loan serviceability on the assumption of a 7 per cent interest rate. Instead, the lenders will be in the driver’s seat, and authorised deposit-taking institutions (ADIs) will be able to set their own review standards, factoring in a buffer of at least 2.5 per cent interest.

Since then, several lenders have started to ease their loan serviceability terms, including The Bank of Sydney, ANZ, Westpac, Macquarie, Suncorp, National Australia Bank and more.

“Moving forward, we’re going to start to see a new norm. We’re going to start to see some common sense coming back into lending, which is something that I really welcome,” she highlighted.

“We’ve already seen a little bit of loosening of the reins with APRA coming out and saying that banks can actually return to making up their own assessment rate... We’re going to start to see different lenders having different assessment rates again, like we had previously. 

“They’re obviously going to base their assessment rates on their risk appetite and their risk level, but what we are going to see is this: assessment rates are going to be much closer to the current interest rate levels than what has been the case in the last 12 months.”

Over the next four to six months, Ms Schulze expects the changes to filter through, ultimately improving most people’s borrowing capacity.

While the continued crackdown on living expenses for mortgage applications may keep the credit conditions tighter for some investors and home buyers, the mortgage expert said that simple smart financial management can help them get back on track.

According to her: “A lot of people still are struggling to realise that expenditure that they’ve been making for the last three to six months is really hurting them when they go and do a loan application because many banks are reviewing that with a fine tooth comb and saying, ‘You’ve spent $5,000, on average per month for the last three to six months, so that’s what we’re going to use for your living expenses.’”

“But what we need to understand is that within those living expenses that have been spent for the last three to six months, there may be some one-off larger expenses. Maybe they bought a new piece of furniture, or went on a holiday, or maybe there is a large portion of discretionary expenditure that can be tapered back if required.”

Moving forward, Ms Schulze hopes that regulatory boards will ease on the assessment of living expenses as part of loan applications.

“Hopefully, we’ll start to see ASIC have a little bit less pressure on the banks in that area and give the ability for the banks to put some common sense behind those decisions when it comes to living expenses — separate what is essential living expenses versus discretionary living expenses — so that when we are doing a loan application, we can get a more realistic view of what actually is the customer’s necessarily living expenses moving forward beyond the date of getting that loan,” she said.

Overall, the past 12 months have seen the credit environment become much better for property investors and home buyers, so much so that they are encouraged to take advantage of the opportunities in the markets today.

As Sydney, Melbourne and other capital city markets make their way toward recovery, the improvement of investors’ borrowing capacities is expected to spur the increase of activity in the property markets once more.

“I think that there’s a couple of areas that are really going to change, like borrowing capacity for a lot of borrowers in the future,” Ms Schulze concluded.

“Potentially, people that have struggled in the last 12 months to access the finance they’re looking for to get their investment property or to refinance their loans to better rates, these loosening might actually give them what they need to boost their borrowing capacity to a point where they can actually do what they want to do.”

“I think there’s a couple of areas that will really make a big difference for them moving forward.” 

Tune in to Marissa Schulze’s episode on The Smart Property Investment Show to know more about the changes in today’s lending environment and how property investors can maximise opportunities in the market.

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