- November 2, 2016
- Posted by: Ethica Private Wealth
- Category: Blog
The times have certainly changed, even in the world of lending, as most consumers and investors know. When lending criteria changed back in 2014, property developers were warned about being prepared.
The overheated property markets in Sydney and Melbourne was the primary blame for the “credit squeeze” of 2014. What many people didn’t realise was that the crash of the stock markets in China and Greece’s issues with creditors and the Eurozone, as well as the unexpected collapse of Iron Ore and other commodity prices had a lot more to do with the APRA’s pressure on banks to tighten up on lending.
As policies continued to change, so did the speculation. But why did banks really toughen up on their lending criteria? Here are some of the actions taken by banks in 2014 and why.
- December 2014: Banks tightened up on home lending standards (mainly for property investors) to hopefully slow the housing price growth rate at time when Australia was experiencing a historically low interest rate.
- May 2015: due to the perception that housing affordability had worsened along with the major acceleration in housing investor credit, lending was further tightened to reduce Loan to Value ratios (LVR) and to test serviceability.
- July 2015: the Banks basically stopped attracting new investors to the real estate market by doubling equity requirements and some lenders to landlords even started requiring a minimum deposit of 20% on new investment property loans. The APRA pressured the Banks to make these changes to their lending requirements.
With all of the above changes, as well as other ones not mentioned here, all major banks have subsequently followed the lead of other banks and have all reduced their loan to value (LVR) to 80%. This credit squeeze has affected property investment and market more than we even realise.
The APRA’s credit squeeze has continued on into today with more proposed restrictions on the way making borrowing and lending much more high risk and funds more difficult to obtain. These continued “squeezes” on the property investment market are largely due to APRA’s and ASIC’s fears of an economic crash in world markets, which could eventually effect Australia’s economy somewhere down the line.
Is it possible that these fears have created an unnecessary economic downturn in Australia? It’s not up to us to place too much speculation on the matter; we’ll leave it up to you decide.
We invite anyone looking for a home loan or investment loan to talk to one of Ethica’s lending professionals on the criteria for obtaining home loans on the Sunshine Coast to get started on turning their property investment dreams into a reality.