There are four main players at work in the current ‘Credit
Crunch’ - the Federal Government, the Australian Prudential Regulation
Authority (APRA, the statutory regulator of our finance industry), the Royal Commission
into Banking and our banks.
They have all played a part in restricting the amount of
available credit to Australian investors. One of them was required, the Royal
Commission, to clean up an industry.
Sadly, the actions and recommendations of these four have
reduced confidence across Australia and reduced your ability to borrow money to
invest in property.
Our Government thought there were too many people investing
in property. They believed that the investors were pushing up home prices. This
nationwide assumption was based on the activity in Sydney and Melbourne
property markets. In these two cities, approximately 50% of people borrowing
money were borrowing for investment purposes and they were taking up interest
only loans.
APRA pushed the banks to restrict lending to investors and
reduce the amount of borrowers taking up interest only loans to below 30% of
the mortgages on their books.
The Royal Commission into Misconduct into Banking,
Superannuation and Financial Services Industry put the wrath of God into the
banking industry to clean up their act. It wasn’t just restricted to lending
money, it covered superannuation and insurance practices as well. It was really
about the banks giving out bad advice, questionable spending of people’s retirement
savings and generally poor standards.
The banks, in turn, increased interest rates for investors
and reduced access to interest only loans for new and existing borrowers. The
banks then tightened their credit policy making it even harder for people to
borrow money. At the same time they changed their criteria to only allow
interest only loans if you had a 20% deposit.
So what we have is ‘The Credit Crunch’, and it’s primarily affecting
property investors.
As investors, as you work through the minefield of the new
lending landscape you’ll find that it’s a whole lot harder to borrow money. You
may feel like we’ve become prisoners of the banking system.
I believe the only winners here are the banks. They’re charging
higher interest rates for investors and holding existing customers to ransom when
they find they can’t refinance. They’re still making huge profits without doing
one extra thing to earn it!
The aim of the Government is to tighten credit for
investors, it has now reached such a limit that I believe it has slowed the
economy down.
These are just my thoughts, and, whilst it’s worrying that
this is happening, I do know that it’s only a matter of time until it all
changes again.
Don’t let misinformed Government policy and money hungry
banks affecting your future.
If you want to invest, do your research, connect with
experts, get a good broker and make sure the numbers add up. Be vigilant and
thorough.
There are a lot of people making life changing investment decisions
right now.
Peter Gordon
Director of Investo property
Please contact the Investo Team if now is the
time for you to make those decisions for your future.
