How do new rules impact refinancing and owner-occupier conversions?
Macquarie Bank, Australia’s fifth-largest mortgage lender, has revealed its new approach to negative gearing following last week’s Budget announcement.
In what was one of the most controversial Budget’s in a generation, Labor treasurer Jim Chalmers announced that negative gearing will be reserved only for new residential builds from July next year. Existing residential properties with negative gearing will be 'grandfathered', meaning they will not be affected going forward.
The announcement was broadly expected, but it nonetheless threw up questions marks over how the new policy will impact serviceability, refinancing and converting owner-occupier property into investment property.
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Each lender is expected to announce their own policies, but Macquarie’s latest broker correspondence gives an idea of what to expect.
“In light of last week’s Federal Budget, we want to outline our approach to negative gearing,” said the letter. "We're taking a considered approach aligned with existing regulatory guidance and responsible lending requirements.”
Despite these changes not yet being legislated, they became effective on Tuesday 12 May.
“As such, it is a foreseeable change for customers that will impact their servicing capacity over the life of their loan,” said the letter. “As a result, we’re required to factor this into how we service loans to comply with responsible lending obligations. We appreciate you’ll also be taking this into consideration when discussing the affordability of loans with your customers.”
What has Macquarie changed?
Buying a new investment property
- Contracts signed on or before 12 May: Negative gearing still factors into serviceability calculations
- Contracts signed after 12 May: Negative gearing will only apply to new builds that genuinely add to housing supply. Deductions against rental income will still be allowed in serviceability calculations
Refinancing an existing investment property
- Dollar-for-dollar refinances: Properties purchased before 12 May remain eligible for negative gearing in serviceability assessments
- Refinancing with cash out: Negative gearing will be included on additional borrowings where funds are used to purchase a pre-12 May investment property, buy an eligible new build, or improve an existing investment property acquired on or before 12 May
Owner-occupier converting to investment property
Properties acquired on or before 12 May that subsequently become investment properties will still attract negative gearing treatment on the debt used to acquire or improve them.
Deductions against rental income
Interest expenses can continue to be deducted from rental income, including pooling across multiple investment properties held in the same name.
In-flight applications
The changes apply immediately to all applications. Macquarie said it is in the process of updating its serviceability calculator to reflect the new changes.
A spokesperson for Macquarie Bank told MPA: "In light of the Federal Budget, we have made changes to our investor lending policy to ensure we continue to comply with our responsible lending obligations. These changes help us ensure property investors are able to afford their loan when the changes to negative gearing come into effect."
