July 4, 2017
The big four banks continue to make adjustments to their mortgage lending policies as they attempt to balance bank regulations and the needs of the still intense and volatile Australian real estate market. The latest adjustment was made by Commonwealth Bank Australia. The bank announced they would take on investor refinancing loans as of 22 of May. This is after they made changes to slow investor lending back in February.
If you’re looking to refinance as an investor, it may be worthwhile to keep an eye on the big banks. It is possible that other banks will take steps to try and attract investor loans as a reaction to CBA’s move.
Commonwealth will, however, continue pushing borrowers to use interest and principal repayments. These investor home loans CBA is offering are only for principal and interest loans. CBA also recently stopped offering their rebate offers for new customers who refinance with the bank with an interest-only owner-occupier loan.
A CBA spokesperson noted, These changes follow APRA’s announcement in March for banks to reduce the number of interest only home loans, and are aimed at encouraging customers to select principal and interest, where appropriate, to help them own their home faster.
After approving huge numbers of interest only home loans, the major banks have been making efforts to slow interest only home loans. Lenders have come under criticism for allowing too many interest-only loans, which put borrowers at a greater risk of default.
While ideal for investors, who may benefit from the reduced early repayments while they find a tenant to rent their property or resell with capital gains, the switch isn’t always an easy one. Monthly mortgage repayments increase significantly when the interest-only period ends. This can be a challenge for those who are not well prepared or who don’t excel at budgeting. The head of one of Australia’s largest real estate firms has called a rise in interest-only loans a classic indicator of a dangerously over-heating market.
As Australia’s biggest lender, when CBA shifts its policies, it is essentially setting the bar for mortgage lending nationwide. However, this move is hard to follow as it contradicts previous moves. The bank has made a series of changes to tighten their policy on interest-only loans this year. They now require a 20 percent deposit for interest-only loans. Previously, they only required a 5 percent deposit for owner-occupiers and a 10 percent deposit for investors.
By reopening to investor refinancing, CBA is making it easier for investors to meet their financial goals by refinancing. This loosening of the bank’s lending policy may be motivated by the need to attract more investor loans. Where other major Australian banks have been continuing to tighten their lending policies, CBA is moving in the other direction, positioning themselves as a more competitive choice for investors looking to refinance their home loans.
Two other big banks, ANZ and Westpac, announced they were requiring larger deposits and shortening their interest only periods for investors. Otto Dargan, managing director of Home Loan Experts’ says that CBA’s move is just one more indicator that banks are in a tough position right now, forced to juggle a balancing act between regulatory limits and chasing volumes.
If you are an investor, news that CBA is taking steps to attract your business is only a good thing. The more competition between the banks, the more opportunities for finding competitive home loan products and refinancing opportunities that could help you save money or reach your financial objectives.
Written by Refinancing.com.au
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