A number of major lenders in the market have reduced their lending value ratio to 50 per cent as part of a move to constrain investing, and the gap between the interest rate on interest-only and principal and interest loans is now large enough to offer as much as a 70-basis point saving depending on the lender, according to James Grima.
Mr Grima, a managing partner for mortgage and finance at Omniwealth, said these changes “are making it more difficult for borrowers to refinance their loans”, especially for those seeking interest-only repayments.
“There is not enough financial incentive for these clients to change lenders, unless they opt for principal and interest repayments,” he said.
However, Mr Grima said investors shouldn’t be put off buying a suitable property despite the increasingly difficult borrowing environment.
“On the positive side, lenders are offering very attractive rates, fixed and variable, for principal and interest loans secured by owner-occupied property,” he said.
“The interest rate difference between interest-only and principal and interest only loans is approximately 30 basis points and for this reason an increasing number of clients are choosing to change their repayments to principal and interest.”