On the 20th July the Australian Prudential Regulation Authority (who’s responsibility it is to regulate the Australian Financial Services Industry), announced changes to the amount of money required to be set aside by the banks to cover an increased risk in their ‘’mortgage lending’’. This applied because major banks in particular, were governed by their own internal ratings system. The increased requirement makes sense given the lack of external independent scrutiny in this aspect. The recommendation for this change came from a recent (FSI) Financial Systems Inquiry & comes into force from 1/7/2016.
In broader terms, the increased money holding requirement was also a direction coming out of the FSI to strengthen the Australian financial system. After all, there is a lot of depositor’s funds under bank management that should not be placed at unacceptable levels of risk. It’s important from this aspect, that Australian banks & non-banks alike, remain strong in terms of liquidity & profit performance. The higher cost to the banks for this adjustment, & the concern over rapidly rising property prices (mainly driven by investors) leading to a property asset bubble, has led many banks to adjust up their residential investment home loan rates by as much as 0.25% to 0.33%. So now across many lenders, there is a distinct difference that has resulted between loans for owner occupied purposes, & those for investment purposes. This is affecting both fixed & variable lending rates. Now more than ever , it pays to check what interest rate is applying to your loan, & review in need.
Click below (APRA media release 20/7/15) for a more in depth explanation of the regulatory change.... http://www.apra.gov.au/mediareleases/pages/15_19.aspx