Australia’s biggest banks have been forced to restrict their mortgage lending, in a move that could have big implications for the third-party channel.

After warning of “heightened levels of risk” in the housing market, APRA has ordered five banks to increase the amount of capital required for their residential mortgage exposures.

That means that ANZ, Commonwealth Bank, NAB, Westpac and Macquarie Bank will have to retain billions of dollars that would otherwise have gone out in home loans. The result is likely to be more expensive mortgages and reduced mortgage volumes.

The five banks currently hold on to an average of about 16 per cent equity against risk-weighted assets – that will now increase to at least 25 per cent from 1 July 2016.

According to APRA’s most recent banking statistics, the five banks in question made 85.0 per cent of all owner-occupied loans in May and 86.4 per cent of all investor loans.

However, it only applies to the five banks, which use what is known as the IRB approach to credit risk. Australia’s other lenders use a more conservative system, known as standardised risk weighting.

Lifting the capital adequacy requirements is consistent with the program of the Basel Committee on Banking Supervision, an international body that has been working since the GFC to make the banking system more secure.

APRA said its new rule is a temporary measure given that the Basel Committee has yet to finalise the relationship between the two credit risk systems.

How this is going to influence what these 5 lenders have to put in place to compensate the effect of these margin changes? Will they have to put their rates up? Or have they been preparing for these for the last 6 months?

Only time will tell however this is a clear indication that the finance industry is undergoing deep & drastic changes that will change the lending landscape forever; And if you are in the market for getting a home or investment loan you might want to consider making your move sooner rather than later as the tightening is increasing

Southern investors are looking to the South East Queensland property market as Sydney becomes too expensive to gain a foothold.

While the latest BIS Shrapnel report warning Sydney house prices will start to fall in 2016-2017 as interest rates start to rise, Brisbane, the Gold and Sunshine Coasts, are emerging as the more attractive destination for investors.

Despite the mining boom coming off the boil, Brisbane’s median house price of $475,000 is looking a lot more affordable than Sydney ($785,000).

“Brisbane house prices just haven’t caught up [to Sydney and Melbourne] – and we are starting to see more investors come from interstate. They have been absent for a while because things have been so good in their own state. But there are definitely opportunities up here now” says property mentor Hiro Rochette

HIGHER RETURNS

Mr Rochette said clients had commented about the expensive price tags in Sydney and Melbourne and they were attracted to the higher returns and the buzz and new infrastructure around the Gold Coast ahead of the 2018 Commonwealth Games.

Chinese investors have also been piling into the Gold Coast apartment market as well as funding their own developments, with over $600 million worth of Gold Coast development sites sold to Asian-backed buyers in the past year.

The BIS Shrapnel report found Queensland would largely be insulated from the dip in house prices in southern states, with further interest cuts later this year expected to make Brisbane homes even affordable.

Brisbane’s median house prices were expected to grow by a total 13 per cent over the next three years, while apartments will rise by 6 per cent.

CoreLogic RP Data released on Wednesday found Brisbane had the highest investment yields of the major metropolitan markets for both houses and apartments.

Sydney’s valuations are now a whopping 80 per cent above Brisbane, according to Corelogic’s head of research Tim Lawless. He said the last time that happened in 2002-2003, Brisbane’s prices took off.

GROWTH PROJECTIONS

REIQ chief executive Antonia Mercorella said the growth projections for Queensland homes were very encouraging.

“Brisbane offers some excellent opportunities for owner-occupiers and investors. This is in stark contrast to other markets, such as Sydney, where rapid price growth is a cause for concern,” Ms Mercorella said.

She said there was also good news for the neighbouring Gold Coast and Sunshine Coast markets with future price growth expected to reach 13 per cent and 12 per cent respectively.

Brisbane real estate agent Rob Holcombe, who runs Bees Nees Reality in South Brisbane, said southern investors were chasing cheaper prices in Brisbane.

“They are primarily investors and most are buying with a view to capital gain. They see better prospects for returns up here, not to mention it’s more affordable,” he said.

“They come up here to buy our property, they just can’t admit to supporting our football teams”

Current talk about the future of negative gearing is unlikely to result in any changes to the system according to one investment expert.

A proposal put forward by the Greens would see negative gearing scrapped and the increased tax revenue used to build affordable housing, but this plan is likely just the latest in a long line of ideas that have never got off the ground… another scare tactic to create political noise.

Banks are becoming less free and easy with their investor home loans. They are finally caving under the pressure of

APRA and putting the brakes on lending to housing investors, implementing tougher policies that experts expect to remove some of the heat from the booming housing market

Under huge public and private pressure from regulators, the big banks are implementing a raft of changes on investor loans:

• The first measure is that most banks and lenders are raising interest rates for many new property investors by scrapping or scaling back lucrative discounts routinely offered; and putting an extra loading on investor loans making these dearer than Owner Occupier loans

• The second measure is concerning the calculations of borrowers to service loan – What is commonly called ‘Maximum Borrowing Capacity’. When banks make loans to customers, they test how a borrower would fare if interest rates were to rise from today’s very low levels.

  Previously, some more friendly banks’ testing had involved assessing how investor borrowers faired with current mortgage payments on existing loans and a sensitized rate on the loan being applied for

  Now, ALL lenders will test how borrowers would cope if interest rates rose to between 7% & 7.5% on all loans.. not just on the one being applied for. This can obviously make a huge difference on one’s borrowing capacity.

  Most banks have also introduced an interest rate “floor” under how low the rates that it uses in its borrower stress-testing can fall. This means that even if the Reserve Bank cuts official rates even lower, all investor borrowers seeking a loan will have to convince the bank they would be able to manage if their interest rate rose to this ‘floor’ rate.

• As a third measure in changes to their lending policies banks also carefully assessing other sources of information including the borrower’s credit history. This has also been coming for a little while with Veda and other credit reporting agencies changing the way borrowing history is managed and what is recorded. The lenders have had a slow uptake of the new rules so far however in light with these reforms they will be making an effort in adopting these changes and thus keeping a closer eye on borrowers repayments history across all providers. Those who have a bad habit in paying their bills late or in a tardy manner will be penalized as this tardiness will be recorded for all others to see… this includes home loans but also credit cards, phone bills and any other provider.

• And finally, as a fourth and last measure to seal the deal, the banks have made big changes to loan-to-valuation ratios (LVR). Indeed these LVRs have been reduced pretty much across the board to 90% for investor loans (from 95% for Owner Occupiers); and with a couple of lenders going even further reducing these to 80% Maximum.

The policy changes are a response to APRA’s warning to banks in December, that they would be forced to run larger capital buffers unless they slow investor credit growth in their loans portfolio.

There will be many different views on how welcomed these changes are and what real effect they will have.

These changes are supposed to ensure sustainable growth in the home loan investment sector to protect both investors and the home loan market.

And depending on the actual effect these measures have on the market, and in particular the roaring Sydney market, further changes may come to into play in the next few weeks or months.

Treasurer Joe Hockey has reinforced that there will be no changes to negative gearing, saying any changes will have “significant flow-on consequences”.

Hockey’s comments came after shadow treasurer Chris Bowen raised the issue last week during an address at the National Press Club. Bowen suggested that the Labour party will head into the election with a policy of winding back negative gearing – perhaps restricting it to new property or just one investment property.

However, Hockey says any changes to negative gearing may result in unaffordable rents and a lack of financial security in the future.

“We’ve seen numerous policy failures in relation to taxation. If you change negative gearing, then there are significant flow-on consequences from people that rent homes, and that needs to be properly considered,” he said in Sydney.

“A lot of Australians have invested their hard earned money in real estate, and in doing so, they have offset the losses of that real estate against their primary income, in order to give themselves and their children some financial security.

“At the same time, there is a very strong argument that if you were to abolish negative gearing, you would see a significant increase in rents. For a lot of people, a massive increase in rents is so unaffordable.”

Thinking about investing in property but don’t know where to start?

You’re not alone.

Property investment has been a popular method of wealth creation in Australia for years, but many people are apprehensive about the risks. All too often, we hear horror stories of plunging markets and rising interest rates with investors caught out of their depth.

However, if you take the time to plan and prepare, property investment can be a positive and worthwhile financial strategy. You’ll never be able to eliminate all of the risks, but you can put the odds in your favour.

So, grab yourself a coffee and read on. Here are some helpful tips to get you started:

Understand what you want from your property investment

Maybe you want to use your self-managed super fund to invest in property or you’re looking to build your wealth portfolio. Your first decision is to identify how investing in property will fit into your long-term financial strategy. Are you looking for high rental yields that generate a regular income or a property that will sell in 5 or 10 years at a profit?

Your strategy will also determine the type of house you choose to buy. For example, a property that can be increased in value through renovation works, or a property that’s ready to be rented out immediately.

Do your sums!

Many buyers fall into the trap of borrowing whatever a bank will lend them. But you need to recognise your limits. What repayments can you afford to make? Can you meet the expenses associated with buying a property? There are some great tools and calculators that can help you make these decisions:

• Can I afford an investment property?
• How much will stamp duty cost?

Make sure you factor rising interest rates into your repayments and whether you’re willing to make changes to your lifestyle to meet expenses.

Evaluate the market

Buying during a rising market can provide strong capital gains if you play your cards right and the Internet offers a wealth of information to help you monitor the market. Both RP Data and Residex offer detailed reports.

More importantly, your own personal circumstance should dictate whether you’re in a position to buy. And if you’re in it for the long-term, the condition of the market holds less importance because properties typically increase in value over a period of 10 years or more.

Get financial advice

If you want to make the most of your property investing experience, you’ll need to understand the tax incentives and options available to you. Talk to your accountant and decide how to structure the financial set-up of your investment property.

Make sure you are aware of the expenses you can claim on an ongoing basis.

Pick the right mortgage

Don’t be sold on low interest rates. Banks often use different terminology to describe the nature of fees and charges associated with a loan.

More and more Australians are trusting the advice of thier mortgage broker over a bank as they understand the broker has their interest at heart.. where the bank has their shareholder’s interest at heart instead.

It is worth checking with a professional before making a move in this area

Consider hiring a professional

Property investment specialists have the insight and resources to help identify hot spots and up-and-coming trends. They can also eliminate the headache associated with negotiation. But it’s a mistake to put all your trust in another person. Always research the advice you’re given. Never sign a contract until you’re 100% convinced about a recommendation.

The Property Investment Professionals of Australia claim to offer professionals that subscribe to a Code of Conduct which considers all consumers and commits to disclosure and a high standard of Best Practice.

Buy into a location you know and understand

Location is everything. And you’re more likely to know the hot markets of areas that are familiar to you. Do your homework. Follow similar properties in the area and make note of what they sell for.

If you’re intending to rent your property out, you’ll need to know what type of rental yield is realistic for the properties you are interested in and what type of tenants the property will attract. Look at similar properties listed with local real estate agents and make note of their monthly rent amount.

Pick a property that will rent easily

If you want your property to rent out consistently, you’ll need to identify locations with high rental demand. Often properties close to public transport, schools, universities and shops are highly sought after. Research the profiles of people who inhabit a suburb so that you know what type of property to buy. For example, families will often seek properties close to schools and may need more bedrooms and a garden. University students will seek small or shared apartments with low rent close to public transport.

The socio-economic profile associated with a suburb generally indicates the quality of tenants. Try to pick locations with low criminal activity.

Who will manage your property?

Managing a rental property can be time-consuming and stressful. Finding suitable tenants, drawing up contracts, property maintenance and chasing payments. Choosing to self-manage will save you the fees associated with hiring a property manager, but you need to make sure you can spare the time involved to ensure a smooth rental experience.

A reliable property manager will draw from their marketing experience and resources to ensure your property is rented out consistently and efficiently. They can also save you the stress involved with handling difficult tenants.

If you do choose to hire a property manager, make sure you hire a good one.

Snapshot!

Investing in property can offer impressive financial returns if you allocate the time and resources in choosing the right property and location. But the wrong decisions can become an expensive and stressful mistake you can’t easily back out of. It’s essential you understand how your investment is going to fit into your overall financial strategy and follow a plan accordingly.

Good luck!

New research reveals buying a place to live is twice as hard as it was 30 years ago; however for those who manage to get on the property ladder it is all good news from there.

A comparison between cost of living in 1984 and 2014 by finder.com.au has revealed the average property value is eight times higher than 30 years ago.

The upside for those entering the property market is they can expect the average property of $580,000 to be worth $4.6 million in another 30 years time, based on current trends.

“It’s a good time to buy property before prices rise further,” says finder.com.au money expert, Michelle Hutchison. “As the Reserve Bank Survey shows that another cash rate cut is on the cards within the next few months, which is likely to fuel property prices.”

The study showed the average mortgage size for Baby Boomers was just twice the price of their average income in 1984. Whereas today, it is four times the price. The average income to mortgage repayments was 23% in 1984 compared to 29% in 2014.

“Even if it takes you another five years to save for a deposit, it’s worth getting into the property market when you can if you compare it to the past 30 years of returns,” she said.

And imagine if you could replicate this and purchase a few investment properties as well as your own home.. This could potentially see you soaring financially above the rest of the population

Lenders will soon be able to assess more of their clients’ credit history than previously, following last year’s changes to the Privacy Act.

Changes introduced in March last year now allow more detailed information to be recorded.

Lenders should soon be able to see more of a borrower’s “good behaviour” show up in credit applications, as opposed to only negative credit history such as defaults and bankruptcies.

Most of Australia’s lenders have agreed to implement the new system over the coming months, which will assist them to make better lending decisions.

Those who have adapted to the change already are able to collect and share individuals’ positive credit information, including the date the account was opened, if it was approved or declined, the type of credit and what the limit is, along with two years of month-by-month minimum repayment history.

“While some might be nervous about this new level of information, we don’t believe that this change is necessarily a bad thing,” Smartline executive director, Joe Sirianni, said.

“It’s likely that we will start to see situations where clients with good credit ratings will be offered a better deal,” he said. “People will be able to recover faster from financial adversity and it will be quicker to establish a credit report.”

Prior to the Privacy Act changes, lenders could only view a customer’s defaults, insolvency history and credit applications, though they were not able to tell if the application was approved or declined.

The housing industry will be boosted by the Reserve Bank’s rate cut. From all angles they same the same chant and signs are pointing to an increase in house prices.. perfect for the investor.

Here are some of the things that we have been hearing:

Housing Industry Association chief economist Harley Dale said the cut would support residential construction, a “star performer” in the economy that generated considerable employment. “The December monthly result confirms we are living through Australia’s greatest-ever home building boom”, BIS Shrapnel economist Dr Kim Hawtrey said.

“The December monthly result confirms we are living through Australia’s greatest-ever home building boom”, BIS Shrapnel economist Dr Kim Hawtrey said.

Phillip Lowe, Deputy Governor of the Reserve Bank of Asutralia, said “it is in the housing market where the strong demand for existing assets is most evident. Many investors, including those in self-managed superannuation funds, have decided that investment in residential property is an attractive option, partly given the low level of interest rates. Prices have risen as a result. Nationwide, they are up by around 10 per cent over the past year, and in Sydney they are up by around 13 per cent. Auction clearance rates have been high and loan approvals for the purchase of residential property have risen very strongly. The good news is that this increased demand for existing housing assets is translating into increased demand for newhousing construction. This is a very welcome development. Investment in residential construction has increased by 9 per cent over the past year and further increases are expected.”

Land developer and Villawood Properties director Rory Costelloe said the rate cut was a “good result for home owners and would provide a “welcome boost” for those looking to buy”.

SQM Research managing director Louis Christopher said he expected 2015 to be another positive year for residential property owners. “Basically the money markets think it’s a dead certainty rates are going to be cut by April 2015, with the chances increasing of another rate cut in June,” he said.

Real Estate Institute of Australia CEO Amanda Lynch said continuing low interest rates and the possibility of a cut should stimulate activity in the housing market. “If such rates cuts happen, housing markets will be boosted throughout the course of the calendar year.”

All in all good times ahead for property investors