A new report has revealed the extent to which regulatory requirements and tighter mortgage lending standards have shackled investors.
The JP Morgan Australian Mortgage Industry Report, released last month, revealed that up to 10 per cent of investors are now unable to obtain the finance they need to continue acquiring property.
The report noted that the proportion of investors who are intending to transact in the next 12 months is going down, largely due to their inability to obtain finance.
According to Martin North, principal of Digital Finance Analytics and co-author of the report, investors are still active in the marketplace, but they are doing “somewhat different things than perhaps what they were doing previously”.
“Investors are still active, but there is now this little question about whether they can get the funding they want,” he said. “There is now around 9 or 10 per cent of investors who cannot get the financing that they want.
“This is a reflection of the different lending criteria that are actually now being very much imposed on the market and that's obviously regulatory intervention on a number of dimensions.”
Mr North’s comments come after a high-profile mortgage broker revealed that clients with sizeable portfolios are being dragged down by new serviceability requirements from lenders, with expenses right down to children’s school fees beginning to come into play.
Ross Le Quesne, principal of Aussie Parramatta, says changes to many lenders’ serviceability requirements are creating headaches for clients with multi-property portfolios.
Mr Le Quesne explained that clients’ abilities to service their existing portfolios, and purchase additional properties, have been significantly diminished in recent months as lenders react to APRA’s crackdown.
The transition by several banks to repayment calculations based on principal and interest, as opposed to interest only, has already seen clients scrambling to come up with double or triple the income they required previously.
“We probably had half a dozen lenders who would assess on interest only, for example. Now, on a million dollars the bank might assess at 4.5 per cent, that’s $45,000 a year. Now, they’re assessing those same loans at principal and interest at about $86,000 a year. So it’s an increase per million dollars of about $40,000," Mr Le Quesne said.
"So for a client with a couple of million-dollar portfolios, if they’ve got a $3 million portfolio, that’s an extra $120,000 of income they have to come up with to service the same portfolio they have."