Bank pulls plug on its investor clients
The changes in the lending market continue as BankWest is set to remove negative gearing from its loan assessment procedures.
Inclusion of negative gearing in loan assessment meant a client’ s taxable income would be adjusted to allow for some of the losses that could be associated with an investment property. Taking this tax effect into account increased the amount of income available for loan servicing assessment. With this option removed it will reduce a BankWest customers borrowing capacity quite significantly.
Running some numbers on a typical scenario a borrower could expect their capacity to reduce by $100,000.
This change is likely to prevent a client undertaking further investment or even accessing equity for other purposes. At this point it is known if other lenders will follow suit.
The changes are mainly a result of APRAs requirement for lender to curb their investment lending growth to 10% per annum on a rolling basis. As lenders get close to this limit they will adjust policy and/or pricing to slow their book.
Unfortunately, this is likely to be the state of play for some time to come which is why having a flexible finance structure in place is increasingly important for investors. A flexible finance structure can allow you to adjust to a change in circumstances without necessarily having to refinance your entire position.