2015 saw APRA announcing directives to change the lending criteria for the big four banks and Macquarie Bank.

The directives have stipulated banks need to not only revise their lending criteria for residential mortgage loans, but to also increase the level of capital backed against it.

Essentially, loan criteria for investors has become more rigorous for investors to pass. For example, some measures put in place include interest rate increase tests (can investors service their loan if interest rates were to increase), and lowering the maximum loan to value ratio percentage (meaning banks will finance less of the value of a property, requiring buyers to save a larger deposit).

6 months on and the changes seem to have had the desired effect. According to Core Logic RP Data, investor lending has fallen 12.8% to $12.3 billion by September 2015.

It is important to remember that these changes are for the long term benefit of the housing market, making it more robust and ensuring banks aren’t overexposed. According to APRA, “strengthening the capital adequacy requirement for residential mortgage exposures…will enhance the resilience of [the banks] and the broader financial system”

The changes are redirecting the market to more a traditional balance, where more money is lent to owner occupiers than investors. In the last two years or so, more money has been lent to investors.

According to Core Logic, “as a result of the slowdown in lending to investors across each state, the value of new lending in most states is now greater to owner occupiers than it is to investors. It is important to note that historically it has been very unusual for investors to be a greater part of the new lending environment than owner occupiers, but that has been the case for most of the past year and a half.”

So what effect have these changes had on the property market?

When the changes were initially made, there did seem to be a drop off of buyer activity in the investment sector.

The Sydney and Melbourne markets, which saw the most investor activity, dipped 17.7% and 20.0% respectively in the three months leading to September 2015. Brisbane and Adelaide were more tempered, dipping 13.5% and 12.7%. Perth dropped of the most, recording a 35.7% decrease in investor activity.

The drop off in activity is likely due to the market adjusting to the changes and it is important to remember that the result of these changes aren’t necessarily a negative for investors.

Firstly, it is very possible that prices have eased in part due to these changes. With less investor activity in the market demand has dropped and in turn prices may have eased. It might not be clear until the end of the quarter as to how much prices have eased, but it is evident now that demand has dropped off.

This is beneficial for investors looking to get into the market now as the market becomes more balanced with less demand.

Investors could also save a bit of money if they need to reassess their purchase options. If investors look in lower price brackets than they were originally planning to buy in prior to the lending changes, they will save money on deposits, stamp duty, and other expenses. Obviously this is proportional to their purchase, but this point serves to remind buyers that there are often positives to be found in large reforms.

Ultimately, the growth potential and rental yield is the most important component of an investment property. Regardless of the price bracket, it’s the potential return that investors should be focusing on.

With every purchase, particularly investment purchases, seek expert advice before making the final decision.