Investor world is changing: P&I loans may be only way into property market


James Grima

James Grima at Omniwealth Mortgage is seeing better prospects for Sydney home buyers as the market cools.

The slowdown of the residential property market, particularly in Sydney, has been good news for buyers as they no longer have to aggressively compete with other buyers to secure a property.

“In respect to interest rates, lenders for the first time in many months are starting to compete more aggressively for ‘Interest only’ and ‘Investment’ loans. We see no major changes to rates in the foreseeable future, particularly for clients seeking loans with principal and interest repayments secured by owner occupied property.

“This is a very competitive part of the lending market with the non- bank lenders providing the lowest rates. The current interest rate environment is a good opportunity to review existing loans and possibly refinance to another lender offering lower interest rate.

“We are now seeing clear evidence that the property market has softened with a number of our clients successfully purchasing property over recent months.

“Many had loan pre-approvals in place for more than six months and were continually missing out on properties they were keen to purchase. The feedback from clients that have recently purchased a property is that there were less buyers attending property inspections and the price they purchased the property for was within their expectations.
“The majority of our clients that have attended an auction over the past two months have been successful, which is in contrast to the twelve months prior where the  majority were unsuccessful due to the sale price being well above the reserve price and expectations,” said James Grima, Managing Partner – Finance, Omniwealth.

Lending conditions favourable for P&I loans

The improved conditions for purchases have been influenced by the tightening of lending policies over the past twelve months, along with the restrictions that APRA have put on lenders in respect to ‘Interest only’ and investment loans.

Whilst it is certainly more difficult to obtain a loan today than 12 months ago, lending conditions are still favourable, particularly for borrowers that are purchasing a home with ‘Principal and Interest’ repayments.

The focus for lenders this year has been on interest-only and investment loans in response to regulatory caps on growth set by APRA.

Earlier this year there were across the board interest rate increases for clients with interest-only repayments and investment loans, however, the rates on these loans are softening due to many lenders now meeting the regulatory caps.

Lenders are offering very attractive rates (fixed and variable) for principal and interest loans secured by owner occupied property.  Lenders are also willing to negotiate better rates for investment loans that have principal and interest repayments.

There is still a significant enough difference between the interest rate on interest-only and principal and interest loans to push borrowers towards principal and interest repayments.

The interest rate saving can be up to 70 basis points with some lenders.

By James Grima, Managing Partner 

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