Banks, Mining Towns and Rental Yields

We’ve all read those adverts in the industry magazines and publications. You know … the ones touting super high rental yields on average houses or townhouses in a far flung mining town.

So it was a kick in the teeth for those developers and marketers recently when CBA,   Australia’s biggest housing lender,  announced that when assessing loan applications for investment properties located in mining towns, from next Monday irrespective of what actual rent the property receives or is estimated to receive, they will now cap rental yields at 8% for their servicing calculations.

I wasn’t surprised in the least when I saw CBA’s recent credit policy change.

This latest change to credit policy is heavily based on the need to minimise the risk of CBA customers defaulting on their loans. With high rental yields in some areas of the country, particularly in mining towns, and a view that these yields are not sustainable, the Bank will be capping rental yields at 8%. By capping the rental yield we are proactively moving to minimise the risk to customers defaulting on their loan while supporting brokers in maintaining their customer portfolio.

What they didn’t mention is that many investors have bought investment properties purely on the premise that the advertised rental would last,  possibly for decades. CBA has changed both their credit and postcode policies over the past few months to further mitigate any impending risk.

Investors would be wise to take note.

The risk of investors defaulting on their loans is increasing amongst those investors with investment properties in mining towns and especially in light of increasing interest rates.

Banks know this & they definitely know their game better than anyone else. You want proof? Check their annual profits.

Their job is to minimise their risk and maximise their profits. CommBank is taking action now, it won’t be long before other lenders follow.

CBA statement:

On Monday 25 November 2013, all Home Loan/Investment Home Loans and Lines of Credit reliant on rental income from a residential security for servicing must not exceed the 8% rental yield.

All applications (including Home Seeker) decisioned after Sunday 24 November 2013, will be subject to the new rental yield cap…

Customers who earn greater than 8% p.a. rental yield must be advised that the Bank can only use the maximum of 8% p.a. rental yield for servicing.



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