03 August 2015
Category: Articles | Latest news

APRA motivated lending change summary

As you may have noticed, there have been major announcements recently about increases to interest rates by some lenders.

What has happened?

  • Changes motivated by the financial system regulator, APRA. It is also important to note that the changes are directed primarily at investor lending and those with interest based (interest only) repayment structures on their home loan.
  • Since the beginning of the year APRA (the body who oversees lending in Australia) has flagged their concern over banks lending to investors, asking them to keep their growth in investor loans to below 10%. The primary driver of the concern has been the level of investment lending in the Sydney and Melbourne property market as well as the way that lenders account for costs of living (primarily in these markets).
  • In particular, this has impacted the major lenders (CBA, ANZ, NAB, Westpac Group) as well as AMP and Macquarie Bank.

Why have they done this?

  • The banks have been asked by APRA to make clear and decisive action to demonstrate their willingness to comply with meeting more conservative investment lending criteria. The major lenders have struggled to meet this request, so APRA has now taken the next step with enforceable measures on the lenders to try and curb investment lending & deliver more robust loan books.
  • APRA has also tweaked the capital requirements against exposure to residential mortgages. This has the effect of increasing the banks costs of lending, as they must now allocate additional funds to balance their loan portfolio.
  • This ‘tweaking’ by APRA has been done in few ways, including using capital adequacy ratios, internal risk ratings and capital requirements, and these requirements vary from lender to lender.

What does this mean for borrowers?

  • At the time of publishing this post, both CBA and ANZ had announced increases of 0.27% on all their variable investment loans.
  • Last week NAB have announced a 0.29% increase on all variable investment loans as well as variable interest only loans – which includes both investor loans AND loans for owner occupied property.
  • AMP have also just released today that they have suspended investor loans completely until later in the year, as well as slugging existing investors with a 0.47% increase on their loan interest rates.
  • This means that if you currently have a variable rate investment loan with CBA, ANZ, NAB and AMP, or an interest only owner occupied property loan with NAB, your interest rate will be going up (if you don’t act soon to make changes to your loan structure).
  • People who have taken advantage of the sharp fixed interest rate pricing available in recent times have the fortune of not being impacted by these increases until their fixed rate term expires.
  • Investor lending across the board is now in a more cautious phase as many look to see what impact these most recent changes will have.

What are the details associated with these changes?

  • Naritas has prepared a detailed summary of credit policy changes to help borrowers and industry commentators better understand the Australian mortgage market.
  • A PDF version of the table below can be requested using this link.
  • The PDF version of the table is recommended for people viewing this page on their phone or tablet as the HTML version of this table is optimised for desktop viewing.
Lender Change to investment loan  max LVR? Change to serviceability? Removal of investment loan discounts? Further helpful info
Adelaide Bank
  • No change
  • From 6th July the qualifying rate for new mortgage loans is the greater of the contracted loan rate + buffer of 2.25% or benchmark interest rate of 7.35% (previously 7.50%)For existing loans the buffer of 2.25% is to be applied to existing loans when not being refinanced as part of the application
  • Note that Interest Only loans are to be serviced on a P&I basis over the P&I period of the loan term
  • No change
  • Living Expenses Criteria Changes have been made to the NSC that will allow the capture of the applicant’s actual living expenses.
  • The amount used in the servicing assessment will be the actual living expenses and/or HEM whichever is the greater.
AMP
  • No change
  • No change
  • Effective Sep 7, variable rates on all existing and in progress investor property loans will be increased by 0.47 per cent p.a. All investor property loan applications that have been approved will be subject to this rate on settlement.
  • AMP will not be accepting new or assessing existing investor property lending applications, effective Aug 29.
  • This is expected to last until later in 2015, depending on market conditions.
ANZ
  • Yes, capped at 90%
  • Serviceability buffer increased by 0.50% to 2.75% (note: also applies to OO loans)
  • Introduce 7.25% min assessment rate
  • Effective Aug 10, variable rates on new and existing investor loans will rise 27bps
  • Effective July 28, fixed rates on new investor loans will rise 30bps
  • For customers with Investor only lending: ANZ will only offer advertised rates, discretionary pricing will be not be available
  • For customers with existing Owner Occupier lending with ANZ: ANZ will offer discretionary pricing on Investor Loans
  • Nil
Bankwest
  • Yes, capped at 80%
  • Serviceability floor increased by 0.37% to 7.57%
  • Changes to serviceability calculation to reflect that the principle loan amount will only reduce during the P&I term of the loan only, not across the full loan term when there is an I/O period (e.g. a loan with a 5 year I/O term and 30 year loan term only has a 25 year P&I period to calculate repayments for).
  • Currently, 100% of the value of bonuses, commissions, overtime and allowances can be used in the serviceability calculation for Retail product applications. The amount to be used in the servicing calculator is reducing to 80%.
  • There will be the need to manually calculate 80% of any bonuses, commissions, overtime and allowances to include in the serviceability calculations. The reduction in the amount of bonuses, commissions, overtime and allowances acceptable will apply to all applications submitted for formal approval from 27 June 2015.
  • Special pricing on Complete Variable for any loan where the primary purpose is investment will no longer be available.
  • Product still available for investment lending up to 80%.
  • Bankwest has reviewed its Retail Annual Living Expenses following the receipt of the most recent quarterly HEM figures.
  • First adult
    Current = $15,648
    New = $14,256
  • Subsequent adult
    Current  = $12,902
    New = $12,983
  • First Child
    Current = $5,238
    New = $5,246
  • Subsequent child
    Current = $3,652
    New = $3,669
CBA
  • No change
  • Serviceability buffer increased by 0.75% to 2.25%
  • CBA will automatically apply a new servicing loading of 20% to all repayments on existing CommBank and OFI Home/Investment Home Loan and Lines of Credit.
  • Note: CBA will exclude all CommBank and OFI Credit Cards, Store Cards, Personal Overdrafts, Personal Loans, Business Loans and Asset Finance from this servicing loading.
  • Effective Aug 10, variable rates on new and existing investor loans will rise 27bps
  • Effective July 31, fixed rates will rise by 27bps for new investor  loans.
  • Discretionary pricing reduced
  • Will only accept 80% of any Work Allowances/Overtime, Investment income, Bonuses and Commission for servicing purposes for all new Home /Investment Home Loan and Line of Credit applications.
  • For all new Investment Home Loan applications negative gearing will not apply where the LVR is greater than >90%.
  • The maximum LVR (including LMI capitalisation) for all
    Owner Occupied Home Loan applications is now 95%.
  • CBA are reducing the maximum acceptable gross Rental Yield for servicing on investment properties to 6% p.a.
Heritage
  • Yes, capped at 80%
  • Adopting whichever is highest – the qualifying rate, or the actual rate + 2%.
  • Qualifying rate remains at 7.15%.
  • Unavailable above 80%
  • Heritage will be qualifying lending commitments for mortgage loans by adopting whichever is highest – the qualifying rate, or the actual rate + 2%.
  • Qualifying rate will remain at 7.15%
Homeloans Ltd
  • Yes, capped at 90%
  • Existing loan commitments assessed at the higher of repayment calculated at Macquarie assessment rate or declared repayment amount
  • No change
  • New loan tiers for Optima – separate rates for O/O & P&I
ING
  • Yes, capped at 80%
  • Rental Income – Up to 70% of gross
  • Shift/Overtime/Commission/Bonus – Up to 80% of gross
  • Orange Advantedge promotional rate ended for investment loans.
  • LVR based interest rates will no longer be applicable. As a result, interest rate discounts will no longer apply to Mortgage Simplifier,Orange Advantage and Fixed Rate Loans.
  • Orange Advantage 0.10% rate reduction to the quoted fixed interest rate removed for investment loan only.
  • All maximum LVR parameters include LMI premiums (i.e. LMI premiums will not be capitalised above the maximum LVR)
  • Interest rate discount for LVR of 90% or less are available for new borrowings and new to ING DIRECT security property, this offer may be withdrawn at any time.
  • Purchase – cash out not permitted
  • Refinance – limit only. Max cash out of $5k will be permitted for break cost only
  • Top up – not available
  • First valuation fee waived where a customer
    applies for or holds on Orange Advantage loan.
Macquarie
  • Yes, capped at 90% (inclusive of LMI)
  • Existing loan commitments assessed at the higher of repayment calculated at Macquarie assessment rate or declared repayment amount
  • Rental expense will be assessed at the declared amount
  • Fixed and variable rates for new investment loans to increase by 0.27% effective 31/7/15
  • Two loan tiers introduced and lower rates for O/O and P&I
  • Product separation between Owner Occupied and Investment with different rates effective 31/7/15
ME Bank
  • No change
  • Buffer on existing debt calculated at Serviceability floor of 7.40% or buffer of 2.20%*
  • Reduced shading to 80% (previously 100%) for Investment, Bonus and Overtime income (note: No shading for commissions – still at 100%)
  • No change
  •  Nil
NAB Broker
  • Yes, capped at 90%
  • The qualifying rate used must be the greater of: the serviceability floor assessment rate of 7.40% pa OR effective borrower rate plus 2.25%
  • A serviceability repayment loading (buffer) will be automatically applied to existing mortgage repayments. This applies to customers’ existing loans which are not being refinanced or paid out as part of the application. The loading buffer will be 28% of the loan repayment amount.
  • Verification of existing mortgage repayments will be required to be performed when that facility will remain (i.e. not being paid out or being refinanced). The information required to be verified is the contracted repayments for P&I facilities and the loan limit & interest rate for Interest Only & Line of Credit facilities. Where there are existing NAB Home Lending facilities, and these will remain in place after the new loan, these details can be verified from NAB systems.
  • IMPORTANT: these changes apply to loan regardless of loan purpose.
  • Discretions removed for new to bank borrowers Interest rate increases (investment loans only)
  • LVR ≤80%: 9bps to 18bps
  • LVR > 80% to 90%: 4bps
  • Rates on interest only home loan will increase by 29bps for new customers, effective Aug 10
  • Rates on existing interest only home loans will increase by 29bps effective Sep 10
  • Existing applications impacted by the recent increase to investor pricing will be adjusted accordingly to reflect a total 29bps increase, effective Sep 10
  • Interest only fixed rates for new customers will be increased by 29bps, effective Aug 10
  • Rates on new and existing LOC facilities will increase by 29bps effective Sep 10
  • Low Doc loans: increase rates by 0.15% p.a.
  • Full Doc loans: differentiate pricing for OO and Investment loans – Rental income shading reduced to 80% (previously 100%)
NAB
  • Yes, capped at 90%
  • The qualifying rate used must be the greater of: the serviceability floor assessment rate of 7.40% pa OR effective borrower rate plus 2.25%pa serviceability repayment loading (buffer) will be automatically applied to existing mortgage repayments.
  • This applies to customers’ existing loans which are not being refinanced or paid out as part of the application. The loading buffer will be 28% of the loan repayment amount.
  • Verification of existing mortgage repayments will be required to be performed when that facility will remain (i.e. not being paid out or being refinanced). The information required to be verified is the contracted repayments for P&I facilities and the loan limit & interest rate for Interest Only & Line of Credit facilities. Where there are existing NAB Home Lending facilities, and these will remain in place after the new loan, these details can be verified from NAB systems.
  • IMPORTANT: these changes apply to loan regardless of loan purpose.
  • Discretions removed for new to bank borrowers
  • Rates on interest only home loan will increase by 29bps for new customers, effective Aug 10
  • Rates on existing interest only home loans will increase by 29bps effective Sep 10
  • Existing applications impacted by the recent increase to investor pricing will be adjusted accordingly to reflect a total 29bps increase depending on when contracts are issued from Aug 10
  • Interest only fixed rates for new customers will be increased from 19bps, effective Aug 10
  • Rates on new and existing LOC and Portfolio facilities will increase by 29bps effective Sep 10
  • *Note: increases also apply to OO loans with interest only repayments.
  • Rental income shading reduced to 80%  (previously 100%)
  • Removal of SMSF loans for residential property
Newcastle Permanent
  • Yes, capped at 80%
  • No change
  • No change
  • Establishment fee of $550 re-introduced for Investment products, remains waived for O/O
PLAN Lending
  • Yes, capped at 90%
  • The qualifying rate used must be the greater of: the serviceability floor assessment rate of 7.40% pa OR effective borrower rate plus 2.25%
  • A serviceability repayment loading (buffer) will be automatically applied to existing mortgage repayments. This applies to customers’ existing loans which are not being refinanced or paid out as part of the application.
  • The loading buffer will be 28% of the loan repayment amount.
  • Verification of existing mortgage repayments will be required to be performed when that facility will remain (i.e. not being paid out or being refinanced). The information required to be verified is the contracted repayments for P&I facilities and the loan limit & interest rate for Interest Only & Line of Credit facilities.
  • IMPORTANT: these changes apply to loan regardless of loan purpose.
  • Interest Paid In Advance offer ended
  • 15bps loading for new & top-up investment loans will apply for loans approved until Aug 10
  • No discretions on Investment Purpose lending
  • Rates on interest only home loan will increase by 29bps for new customers,
    effective Aug 10
  • Rates on existing interest only home
    loans will increase by 29bps effective Sep 10
  • Existing applications impacted by the recent increase to investor pricing will be adjusted accordingly to reflect a total 29bps increase, effective Sep 10
  • Interest only fixed rates for new
    customers will be increased by 29bps,
    effective Aug 10
  • Nil
Suncorp
  • No change
  • Unless interest rates are fixed for full term of the loan, CTR (Capacity to Repay) calculations are to be performed using greater of:
  • Sensitised rate (calculated at 2% plus the actual loan interest or Floor rate)
  • Floor Rate: from 7.01 to 7.10%
  • Home Package Plus margin discount no longer applies for investors
  • Standard Variable and 3yr fixed package special ended
  • Special discounts to only apply to Owner Occupied P&I loans.
  • For investment and Interest Only loans ≤90%, carded discounts to apply.
  • LVR >90%, Standard Variable Rates to apply.
  • Annual package fee waiver for life of loan extended until 31/12/2015. Conditions apply.
St George
(including BoM & BSA)
  • Yes, capped at 80% if the security used is non-owner occupied
  • Normal LVR policy applies if at least one security is owner occupied
  • Annuity, superannuation or private pension will be assessed at 80% Rental income from investment property will be assessed at a maximum of 60% when the market value or purchase price is:
  • Greater than $2,285,000 in ACT/ NT/ QLD/ SA/ TAS/ WA; and
  • Greater than $3,429,000 in NSW (excluding ACT)/ VIC
  • Income verification requirements for Non-Mortgage Insured and Mortgage Insured applications are now aligned.
  • Buffer rate will increase to 2.10%, the Floor rate will increase to 7.10% and serviceability calculators will be updated with the December 2014 figures for HEM.
  • Credit cards or store cards to be assessed at 3% of the approved credit limit.
  • For loan expiring from 1/8/15 onwards, 2 & 3yr fixed and var rate discount special offer will be removed
  • Basic home loan promotion and Refinance rebate offer extended
  • 2,5yr fixed home loan rate changes.
The Rock
  • Yes, capped at 80% for NSW
  • All other states capped at 90%
  • No change
  • No change
  • Removal of SMSF product
Westpac
  • Yes, capped at 80% if the security used is non-owner occupied
  • Normal LVR policy applies if at least one security is owner occupied
  • Rental shaded to 60% for prestige properties (>$3.429m in NSW & Vic or >$2.285m in all other states)- Negative Gearing removed – income was not taxed and shaded to 80%
  • Credit Card repayments assessed at 3% (previously 2%)
  • New HEM table with income band added.
  • Annuity, superannuation or private pension assessed at 80% (previously 100%).
  • Income Calculation changes.
  • Surplus buffer rate increased from 0.21% to 0.25% effective 1/8/15
  • Discretionary pricing reduced on the following products: Special 1yr IOA ended
  • 1yr IOA discount reduced to 0.20%.
  • All applicants must have an Australian visa and confirm to Foreign Investment Review Board (FIRB) requirements.