In a significant move, Commonwealth Bank (CBA) has recently expanded its home loan offerings to accommodate investors with deposits as low as 5 percent, provided they commit to paying both principal and interest. This development marks a shift in the bank’s lending policies, making it more accessible for those looking to invest in the property market.

Previously, CBA required investors to have a minimum deposit of 10 percent, equating to a loan-to-value ratio of 90 percent or less. However, these new borrowers will be subject to higher interest rates due to their smaller deposits, with the lowest advertised rate for an investor with a 5 percent deposit from CBA set at 7.59 percent.

But how do other major banks compare when it comes to offering loans to investors with such low deposits?

ANZ: Similar to CBA, ANZ also offers loans to investors with as little as 5 percent deposit, and they have the flexibility to choose between principal and interest or interest-only terms.

Westpac: While Westpac does provide loans with small deposits to select investors, such as certain medical professionals and loans cross-collateralized with owner-occupier homes, it’s not a universal offering.

NAB: National Australia Bank (NAB), in contrast, does not extend its loan options to investors with deposits of 10 percent or less.

Interestingly, the shift in lending practices at CBA comes at a time when investor interest-only loans have shown lower arrears rates compared to owner-occupiers. Recent data from the Australian Prudential Regulation Authority (APRA) for the June 2023 quarter reveals that owner-occupiers now have the highest proportion of loans in arrears, marking a reversal from the situation two years ago when investors had the highest arrears rates.

Sally Tindall, the research director at RateCity.com.au, notes, “CBA is opening up its books to investors with as little as 5 percent deposit, but the offer comes with a couple of caveats. These borrowers must commit to paying principal and interest, something many investors are hesitant to do, and be willing to pay a higher interest rate.”

She also observes that while investors are often seen as riskier borrowers, the latest APRA data indicates otherwise. Investors have several advantages, including the ability to increase tenant rent annually to cover rising mortgage repayments and claim the interest charged on their loans as a tax deduction.

With vacancy rates at historic lows and the property market in high demand, investors are unlikely to face difficulties finding tenants, a stark contrast to just two years ago when many investors were offering reduced rents to assist tenants during lockdowns.

This shift in CBA’s lending policies reflects the current market dynamics and changing investor profiles.

If you are considering an investment in the property market and are interested in learning more about your financing options, you can contact Vantage Financial at 1800 595 500 or email them at info@vantagefinancial.com.au.

You can also visit their office at Suite 1202, 52 Alfred St, Milsons Point, NSW 2061.

As always, it’s essential to conduct thorough research and seek professional advice to make informed decisions about your investments and financial needs.