ANZ Banking Group has recently confirmed it will start offering customers an interest-only period of up to 10 years again, after clamping down on this type of lending in 2017 (the group currently offers a 5-year period). Coming into effect from 25 March, it was also announced that rather than requiring a 20 per cent deposit of the property value, it will allow interest-only loans if the customer has a deposit of at least 10 per cent.
These changes suggest the bank, which is one of the big four lenders in Australia, is trying to encourage growth in the housing investment market. It's in this sector that interest-only loans are most popular, and the group has admitted to being "overly conservative" in recent years. However, this move is also a clear signal that restrictions on interest-only and investor loan growth are loosening, after the Australian Prudential Regulation Authority (APRA) removed the 30% cap on these mortgage types in late 2018.
Driving business amid softening economic conditions
The move comes as no surprise when current economic conditions are taken into consideration - lending growth has hit record lows in Australia amid the softening of the once-booming property market, so the banks are having to mobilise in order to retain profitability.
According to Reuters, APRA's 30% cap, which came into effect in early 2017, has contributed to the 8% decline in home values across Australia since September 2017. In particular, ANZ reported a 3.8% decline in home lending to investors last year. During the same period, the country recorded a credit decline of 4.2%.
Shayne Elliott, CEO of ANZ, acknowledged in February that customer sentiment has remained subdued, with uncertainty surrounding house prices and regulation affecting investor confidence. However, he believes the bank is now taking steps to increase volumes in the investor space.
A recent ANZ memo stated: "In response to APRA's responsible lending guidance in 2017, ANZ made a series of policy changes to manage the growth in interest-only and investor lending. On recent review, we have made a decision to increase our focus on the investor market.
"The upcoming changes demonstrate our continued appetite in the investor market, whilst ensuring we remain in line with our APRA requirements."
Is Sydney's looming election affecting investors' decisions?
The Federal Election is expected to cause major disruption, and it’s highly likely market activity will dampen down around April as investors adopt a ‘wait and see’ mentality. This is typical so close to elections, but buyers and investors will be even more cautious this year if Labor win. The party plan to reduce the current capital gains discount from 50% to 25%, while limiting negative gearing to off-the-plan or new investments.
These changes will apply to investments purchased after a particular date, which will be announced once the results of the election are confirmed. However, existing property investments will be protected, meaning owners will carry on with negative gearing and will receive a capital gains discount of 50% when they sell.
Investment home loan
If you are looking to purchase or refinance an investment property home loan, utilising a mortgage broker like Mint Equity will streamline the process and take the stress out of the process. Whilst there are some great options for investors, interest-only doesn’t suit everyone. Lending criteria is still tight so working with an experienced and trusted mortgage broker is key to a successful investment property loan application.