Lenders are looking for creative ways to entice investors back into the market, even as the rules change.
It’s a shift that comes as investors face a changing regulatory landscape. This past autumn, the new federal budget sent ripples through much of Australia, including the financial sector, with wide-scale changes. Among them were plans to abolish the blanket capital gains tax (CGT) and limit negative gearing benefits to newly-built properties.
At the same time, the Australian Taxation Office (ATO) tightened its rules preventing holiday homeowners from claiming deductions on properties that are not genuinely income-producing rentals.
Taken together, the changes put downward pressure on investor sentiment. Markets quickly priced in an investor exodus. That same month, in May, Westpac forecasted that investor activity could fall by as much as 34% in the near-term.
By June, Westpac had confirmed that its own investor book had a 20% decline in investor loan applications in the last three weeks.
On the ground, brokers confirmed the news, saying that investors had all but disappeared from the market, following the May budget reveal.
"Over the past two to three months, the budget has definitely shaken things up a fair bit," Bryan Ong, founder, broker and advisor at Rise High Financial Solutions and Investor, told Australian Broker. "A lot of investors have put off their property investing goals aside because of uncertainty; it feels like everything was working against them in the budget.
"Basically, what the budget has resulted in is pretty much a 20% to 30% reduction in property investors' borrowing capacity, which is a big thing. Because what you could pretty much afford previously for $800,000, all of a sudden you're now looking at $600,000. That changes the story a fair bit."
Brokers are adapting by looking beyond traditional investor lending, with refinancing and other segments of the market becoming increasingly important. But lenders are adapting too. Still in the business of writing loans, they are finding new ways to work within the changed rules, rolling out incentives and reshaping their products to make borrowing more accessible to investors.
"We're starting to see banks trying to maneuver around the changes the best they can to drive business back," Ong explained. "We're seeing banks starting to come up with creative ways to help investors improve their borrowing capacity by introducing different policies."
In July, AMP Bank launched a 40-year loan term aimed at property investors. In addition to the longer than standard loan term, the product also allows borrowers to make interest-only repayments for up to 10 years, helping preserve cash flow, without requiring a reassessment during that period.
Some specialist lenders are taking a different approach, using lower serviceability buffers that allow certain borrowers to be assessed at rates 1 or 2 percentage points above their actual loan rate, rather than the 3 percentage-point buffer used by APRA-regulated banks. For investors, that can translate into greater borrowing capacity.
"These are the options that are starting to appear again," Ong said. "Those small things that help with the borrowing capacity side of stuff."
Joey Delis, an Adelaide-based broker at Loan Market, said many lenders have been reluctant to make public changes to their rates in recent months.
"But if we as brokers requested a discount from the bank, they've actually given us a bit more discount than they did previously, to win business," he explained. "I think the main thing is [that] business development managers for the banks are really proactive again. A lot of brokers across the country are getting phone calls from business development managers wanting to book meetings and talk about their products, and that's probably because they are quieter than usual and they're trying to get some business back. And there's a few mechanisms that are being pulled to generate that business. Primarily, dropping interest rates, changing product mixture a little bit, and then getting the business development managers out and about again."
Belinda Sugars, franchise owner and mortgage broker at Mortgage Choice Parkside in South Australia, has also noticed lenders becoming more competitive on rates for borrowers with lower loan-to-value ratios (LVRs).
"They're doing much more competitive lending for investors in the sense of the loan-to-value ratio," she said. "Some lenders have had this for a while, a lot of them, with their tiers, that if you're borrowing less than 50% of the value of the property, you get a better rate. So they're actually working hard on the lower-tiered loans, and offering very good incentives for investors rate-wise."
Ong said all the incentives are in effect restructuring the market, and could prove to be "a positive to come out of the budget from a property investor standpoint. It's going to reward those that are strategic and well-prepared."
But not everyone is convinced that lender incentives are making a dent on the market.
Paul Katranis, founder, director and broker at Adelaide-based brokerage SA Wealth, said the market remains too weak and investor anxiety too high for lender incentives to make a meaningful difference.
"Lenders are getting more sensitive in regards to retention, and also they're starting to change some of the policies to trim around the edges," he said. "But that's not having a noticeable change in terms of activity though. That's a bit of a sprinkle on top. Consumer sentiment is pretty much destroyed right now."
