WITH MORTGAGE LENDING at a high, RBA rates at an historical low, and competition within the lending industry extremely hot, a peculiar thing began to occur last month. Interest rates began to increase.
This was most profoundly evident with residential investment loans, with several of the majors increasing rates and reducing LVR limits for these loans.
In addition to this, brokers have noticed almost across the board tightening of serviceability tests among banks and non-bank lenders alike.
These changes have come at the urging of the Australian Prudential Regulation Authority (APRA), who have been concerned for some time that banks and other deposit-taking institutions were exceeding the recommended allocation of investment loans, and have therefore put a cap on a 10% increase in investment lending over the next 12 months.
While much has been made of the need to put the brakes on a heating property market, and this appears to have been a factor, the changes have mainly been about prudent lending standards.
Ignoring that much of the increased growth has come largely from Melbourne and Sydney and many other areas of the country have experienced a deep decline in prices, an obvious question arises for commercial property investors: Are there any similar changes on the horizon — given the prices of commercial property in these markets have followed similar patterns?
The answer to that question is … not likely!
APRA releases a quarterly report on property exposures and while this has shown a steady increase in commercial property loans, the increase has been at a rate just over half that of the residential investment loans.
Furthermore, with the economy as a whole continuing to meander at a very sluggish pace, commercial property investment, which is more closely linked to business investment than residential property, is likely to be protected from prudential changes.
This would apply even in the event that there was a large spike in commercial lending outside the norm.
Therefore, with banks and other ADIs looking to balance their portfolios, and with low interest rates across the board … the result is that there has never been a better time to borrow against commercial property.
For larger property investments, margins have come down to pre-GFC levels and from a lower base. So for the commercial property investor with a good equity and income coverage, this gives them an enormous amount of power.
So what is the takeout from this information?
Bottom Line: If you are nearing the end of a fixed term or if you have a variable rate, it may well be a good time to review your current lending portfolio. Switching banks or at least providing a quote for your existing bank to match can be a well-worthwhile exercise.
After all, all is fair in love and commercial lending (having seen the banks’ behaviour post GFC, I can testify to that).