Owner-occupiers are set to enjoy cheaper home loans compared to property investors. It’s the first sign that lenders are shifting away from investor driven growth.
This development comes as a response to ARPA’s 10% growth cap recommendation. The cap is designed to limit credit lending to property investors. By keeping investor lending growth below 10% a year, APRA believe it will prevent the housing market from overheating.
That’s why banks are introducing cheaper loans to owner-occupiers. They see this as a way around ARPA’s guideline concerning investor lending. Attracting more owner-occupiers to take on mortgages through cheaper loans could allow banks to maintain their high levels of lending. It’s not yet known what types of packages banks will prepare in the long run. But NAB owned Advantedge may give us some idea.
Advantedge is a wholesale lender that borrowers access through mortgage brokers. Borrowers use brokers to negotiate loans with banks on their behalf.
Advantedge have been offering owner-occupiers a 0.15% home loan discount compared to investors. On a $500,000 mortgage, that’s a potential saving of anywhere between $8–15,000 in interest.
This development is still in its infancy. It’s expected that banks will work around APRA’s 10% investor growth cap in different ways. But it seems certain that new pricing tiers for owner-occupiers will become more common.
Why APRA is blaming increasing investor lending on brokers
APRA believe growth in investor lending is down to mortgage brokers. That’s because brokered loans have a larger share of property investors. APRA say brokered loans come with added risk.
The theory is that brokers can negotiate better deals for customers. And because of this, they close deals with banks for riskier clients.
There is truth to the claim that brokered loans are rising. Recent data showed that NAB expanded its investor lending by 13.8% in March. Mortgage brokers were responsible for much of this growth. In fact, NAB brokered home loans jumped 15.2% in the last year.
But it’s unclear whether brokered loans are any riskier than regular loans issued without brokers. NAB doesn’t seem to think so. Their data shows that there was no difference in arrears between brokered and bank loans. The arrears rate measures how far borrowers have fallen behind on their mortgage. That would suggest brokers aren’t to blame for riskier investor lending.
With or without brokers, banks are set to increase preferential treatment for owner-occupiers. This should close the gap between lending to owner-occupiers and investors somewhat.
But it’s unclear whether cheaper loans to owner-occupiers are going to prevent the property market from expanding. It could have the opposite effect, pushing up total demand for home loans. APRA will be hoping that doesn’t prove to be the case.
Contributor, The Daily Reckoning
PS: Lenders are finding unique ways around APRA’s regulations. Their willingness to do so is a sign of the appetite Aussies have for real estate. And it points to an ever larger national housing market in the future.
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