Westpac extends interest-only loans to investors with 10% deposit

By Katherine O'Chee ·

Westpac is now opening its doors to property investors with smaller deposits. In the latest move to loosen its credit policy, the big bank has increased its loan-to-value ratio (LVR) cap for interest-only investment loans from 80% to 90%.

This means investors who have only saved up to 10% of the property value will be able to take out an interest-only loan with Westpac-owned subsidiaries including St George and Bank of Melbourne, or with any Westpac brand.

But for owner-occupiers, the maximum LVR for interest-only loans will remain the same at 80%. 

The change comes in light of falling interest rates and the Australian Prudential Regulation Authority’s (ARPA) decision late last year to remove the 30% cap on interest-only lending. Since June 1, the average rate for interest-only investment loans in Mozo’s database has dropped to 4.41% p.a., down from 5.04% p.a..*

RELATED ARTICLE: More Aussies are choosing to borrow with a 10% deposit says APRA, but are they forgetting one important thing? 

Mozo’s Property Expert, Steve Jovcevski said Westpac’s loosening of its credit policy is a step in the right direction and part of the big bank’s efforts to grow its investor customer base. 

“Now that Westpac allows a 10% deposit, all those people who thought they had to save up an extra 10% or wait a bit longer, can get into the market earlier and maximise capital growth over the next 12 months, especially with house prices going up in places like Sydney and Melbourne.” 

While having only a 10% deposit means you’ll have to pay Lenders Mortgage Insurance (LMI), Jovcevski believes the pros outweigh the cons. 

“Interest-only loans with a smaller deposit is an encouraging thing for investors because it allows them to make lower repayments, unlike principal and interest where you have to make higher repayments. This means they’ll have more available funds to purchase potentially another property or spend it on renovation,” he said. 

“Property investors who may have been wary about getting into the market with a 10% deposit - not because of the LMI, but because of the bigger principal and interest repayments - may now be enticed back into the market, thanks to the availability of an interest-only option which gives investors just starting out more breathing space.” 

And according to Jovcevski’s predictions, more and more banks will increase their LVR caps over the coming months while many lenders will continue to slash their interest-only rates. 

In fact, ANZ has already risen its LVR limit for property investors with interest-only loans to 90%, while customer-owned lenders P&N Bank and Newcastle Permanent made the same increase last month. 

So if you’re looking to take advantage of low interest rates and higher LVRs in the market, it could be time to hunt down a great deal for your next investment property. Compare investment loans below or head over to our investment loans comparison table for even more options.

Compare investment loans - last updated January 26, 2021

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