Home loan interest rates: 2017 to be a tough year for investors
It seems APRA may be forced to impose further restrictions on investment lending, as concerns persist over the amount of mortgages taken out by property investors.
In 2015, APRA introduced guidelines implementing a 10% annual limit on the growth of banks’ investor loan portfolios, a limit that often results in banks regularly cracking down on property investors.
The most recent RBA data from November 2016 shows that investor loans were growing at a rolling annual average rate of 6.30% - well under the limit set by APRA. But that figure is likely to increase sharply over the next few months thanks to stronger growth over the last quarter of 2016, leaving banks to tighten their standards in order to toe the line.
In order to do so, both Bankwest and its parent company the Commonwealth Bank recently announced they would no longer lend to property investors looking to refinance their mortgages. Less than a week later, Bankwest went one step further, by eliminating negative gearing benefits for investment borrowers.
“For customers who operate their investment property at a loss, where the income of the investment property does not exceed the costs, the related tax benefit will no longer be included in Bankwest's calculation for serviceability of the loan,” said a Bankwest spokesperson.
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Bankwest also recently increased investor interest rates by 60 bp in a bid to lower the amount of borrowers applying for mortgages and the Commonwealth Bank today announced that rates on interest only investment loans will increase by 12 bp and line of credit mortgages by 4 bp, effective as of April 3.
"Over the last two months we've seen many lenders increasing rates for investors as they seek to reduce the volume of new investor loans, while improving the interest margins on their loan books," said Mozo's Product Data Manager Peter Marshall.
At the moment, 79% of the lenders in Mozo’s database charge higher variable rates for investors, averaging at around 0.29% more than for owner occupiers. And things are only getting gloomier for investors, as over the last two months 39 lenders in the Mozo database increased variable rates for investor loans.
"Now more than ever investors need to make sure they aren't paying more interest than they need to on their loan," said Marshall. "There are still some lenders, particularly smaller players, that are keen for new business and priced sharply."
Top variable rates for investors
| Investment loan | Variable rate |
|---|---|
| loans.com.au Smart Home Loan Essentials* (only if packaged with an owner occupier loan) | 3.59% |
| BCU OMG Home Loan | 3.69% |
| FreedomLend Variable Home Loan Special Offer | 3.69% |
| Police Credit Union The Better Home Loan | 3.69% |
| Homestar Variable Rate Home Loan | 3.69% |
Based on a loan of $500,000 borrowing up to 80% of the value of the property.
*Product no longer exists (as of 18/12/2018)
* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.
** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.
^See information about the Mozo Experts Choice Home Loan Awards
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