Major caps yields as rents drop thousands per week

by Amy Rosenfeld21 Nov 2013

Rents are dropping by as much as $1,000 per week in some high yield mining areas and lenders are likely to follow CBA’s lead in lowering rental yield caps, says one rural broker.

Dan Collins, director of Port Hedland Finance in Western Australia, says annual rental incomes have dropped as much as $50,000 per year for many properties in the area and he expects this trend to continue into the new year.

“It’s fortunate that interest rates are still very low, but if interest rates were to climb as these rents are dropping that would put borrowers in a pretty awkward position.”

CBA has announced a rental yield cap on investment properties in mining towns of 8%, coming into effect on Monday. A number of lenders already have rental yield caps at this rate or lower, and Collins says he would expect others to follow CBA’s lead.

“It will happen more and more. If you’ve got a fair bit of exposure to mining markets then they’d want to limit that risk if they can.

“This will be in response to borrowers saying they can’t met their loan requirements anymore and if rents continue to drop and more borrowers are put in that position then the banks need to manage that reputational risk.”