I have a couple of investment loan and understand the bank has increased the interest rate - can you tell me why?
Excellent question – it is a combination of a few factors. The continued commentary around the property market has seen lenders tighten their credit policies on investment lending and the regulatory body APRA has increased the capital requirements on the banks for residential mortgage lending.
With APRA increasing the capital requirements the banks have to raise more money. They can either do this by delving into their existing profits and upsetting shareholders or they can increase their interest rates and upset their customers. We all know the answer, however, did they seize the opportunity by increasing rates by the margins they have.
It is a great opportunity to have a look at what else is available in terms of rates. Have a look at a couple of the lenders who aren’t deposit taking institutions, such as the non-banks and see what rate they are prepared to offer.
Hi Joseph, congrats on having investment property . Here is a post that I put up back in August - long but informative...
You have probably seen or read in the news recently that the Australian Prudential Regulation Authority (APRA) has issued guidelines resulting in changes to mortgage lending policy.
You may be wondering exactly what the changes mean — and particularly what they mean for you.
Background - Briefly, the Government Regulators including the Reserve Bank have expressed concerns about a potentially overheated property market, especially in Sydney and Melbourne. APRA is looking to take the heat out of the market by slowing the growth of mortgage investment lending.
In its role as regulator of banks and other financial institutions, APRA has issued guidelines designed to do that, as well as ensuring the ongoing strength of Australian banks.
Key changes - APRA has asked banks to cap investment loan growth at 10% p.a. A number of lenders are already at, or even over, this limit, so they are under pressure to significantly reduce their investment lending.
The four major banks and Macquarie Bank are also required to increase the capital they hold against mortgages, which tends to increase the cost of lending. Banks have already passed on some of these costs to customers via higher interest rates.
What does this mean for you? - If you have a home loan that includes principal repayments or you live in your home, you may not be affected. In fact some lenders may even decrease interest rates on that loan.
If you have an investment, or an ‘interest only’ home loan, you may find that your lender increases the interest rate on that loan.
If you are looking at buying an investment property, you are likely to find the lending market more restricted than in the past. This doesn’t mean you won’t be able to find a loan that suits you, just that it may take a little more time. That’s where I can help.
Short answer is because contractually they can. Long answer is because other banks have, so yours doesn't want to miss out on making more money, cash rates or the money they buy from the money markets is more expensive, credit squeeze or supply is tight.