Lending curbs having ‘dramatic impact’ on property market

The decision by lenders to raise interest rates on investor loans have had a dramatic impact on the market, according to financial advisory and investment group Cigna Wealth.

Cigna Wealth CEO Kent Leicester said the latest home loan approvals data for October released by the Australian Bureau of Statistics (ABS) showed a 6.1 per cent fall from the previous month in loans approved for investment housing.

“The decision by many lenders to raise interest rates for investment and interest-only loans as well as revising their borrowing conditions has certainly been effective in deterring investors,” Mr Leicester said.

“Banks have also gone on to lift variable rates independently of the Reserve Bank of Australia (RBA) cash rate decisions as they face additional compliance and provisioning costs.

“They have done so in response to the Australian Prudential Regulation Authority (APRA) which has been enforcing new regularity requirements that will increase the cost of providing mortgages.”

Mr Leicester said the RBA missed a chance to boost consumer confidence in the lead up to Christmas by reducing official rates from the current record low of 2.0 per cent, where they have been held since May this year.

“Rates being raised independently of the central bank’s decisions has cooled the investor property market and it will also have subdued consumers as we approach Christmas,” he said.

Mr Leicester said the RBA has more capacity than most central banks around the world to lower its cash rate and another cut is anticipated in the first half of 2016.

“Although lower interest rates are not good news for some investors, they have helped borrowers and bolstered consumer confidence during challenging economic times,” he said.

Mr Leicester said Cigna Wealth’s advice to home loan customers is to take advantage of the low interest rate regime and pay down mortgages as much as possible.

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