In late 2018, APRA lifted two significant restrictions against banks; a cap on the number of interest only loans they could provide and a limit on how much a bank could grow its lending to investors. As the above chart shows, these restrictions impacted investor lending.
Despite these developments, it will remain a challenge for investors to access and refinance loans in 2019 because of strict serviceability criteria. One specific issue investors need to consider is the cash-flow implications of moving to a loan with principal and interest repayments.
Why Does Cash Flow Matter?
In the past, many investors were able to lower their repayments and increase their cash flow by only paying the interest portion of their loan. Now, many investors will have higher repayments which could affect a number of areas within their investment(s) structure.
What Investors Need to Know:
- Lenders all have widely varying policies for investment lending, so it’s critical to shop around and find the right lender.
- Banks will be accessing your investment off your current situation instead of how things were when you first got your investment. It is imperative that you have everything in order.
- Understand all the implications of switching between a positively and negatively geared investment.