Rates on interest-only investor loans are softening, as many lenders have met their regulatory caps imposed earlier this year, but there is still a significant difference between rates on interest-only and principal and interest loans that should encourage investors to opt for P&I loans.
James Grima, managing partner, finance at Omniwealth, says: “While it is certainly more difficult to obtain a loan today than 12 months ago, lending conditions are still favourable, particularly for borrowers who are financing their purchase with a principal and interest loan.
Grima says lenders are offering very attractive fixed and variable rates for P&I loans secured by owner-occupied property. Lenders are also willing to negotiate better rates for investment loans that have P&I repayments.
Lending restrictions imposed by the Australian Prudential Regulation Authority over the past couple of years, designed to limit the growth in investor and interest-only mortgage lending, as well as tighten serviceability assessments, appears to have had their intended effect.
According to the latest APRA figures, banks’ and other lenders’ residential term loans to households were worth $1.5 trillion at the end of September – an increase of $100.3 billion, or 6.9 per cent over 12 months.
In the September quarter, $98.2 billion of new residential term loans to households were approved, of which $30.9 billion, or 31.6 per cent were investment loans.
In the September quarter last year, investment loans made up 34.9 per cent of total new mortgage lending.
Interest-only loans accounted for $16.6 billion, or 16.9 per cent, of total new lending – down from 37 per cent of the total a year earlier. The volume of interest-only lending has been cut by more than half over the past year.
The proportion of loans with high loan-to-valuation ratios (above 90 per cent) fell from 8.1 per cent to 6.8 per cent year on year.
Most lenders have met APRA’s requirements by increasing rates on interest-only and investors mortgages.
However, comparison site Mozo reports that several lenders have begun to reduce rates and relax criteria for these loans. Last month, AMP increased the maximum LVR for investors from 50 per cent to 80 per cent.
Heritage Bank increased its maximum LVR for investors from 80 per cent to 90 per cent. Beyond Bank resumed lending to investors.
Virgin Money cut rates for investors with interest-only loans and LVRs up to 70 per cent by up to 16 bps.
G&C Mutual cut all interest-only fixed term rates for investors by up to 30 bps.
It is not all one-way traffic. Queensland Country Credit Union increased rates for all interest-only borrowers by 35 basis points, and for investors with its Ultimate Home Loan Package it increased interest-only rates by up to 75 bps.