Shift in lending policy could bite investors and interest-only loans

The Federal Treasurer has signalled a tightening of borrowing criteria that could severely impact property investors with high levels of borrowing, as well as those with a fixed-term interest-only loan soon coming to an end. Not to mention the effects the changes could have on new borrowers and property owners looking to refinance.

Why the new rules?

In an attempt to cool the current, record-breaking growth in house prices, and reduce the risk of defaults if interest or unemployment rates rise, the Federal Treasurer has flagged that he will allow regulators to tighten the rules on lenders offering high debt-to-income loans (typically around six times a borrower’s income).

What does this mean for investors?

A number of analysts have suggested that investors could be the hardest hit*, as they’re the ones who’ve been able to take on larger loans** thanks to their existing financial and asset position.

Of particular concern are investors who are looking to renew interest-only terms. With new rules making it harder to refinance, they may force these borrowers to settle for principal + interest loans.

A smart move for investors: review mortgage now!

So even if you have 12 to 24 months left on your interest-only loan, we recommend reviewing it now, to see if restructuring now for a further five years could help avoid issues in the next year or so.