Banks are the largest providers of mortgage finance in Australia. They also provide loans to developers for projects.
With historically low interest rates in recent years, banks expanded their lending to the investment and first-home-owner markets. The increasing returns to be made from property investment gave the banks a greater return on their investment for developers of all types of property. However, post 2015, APRA tightened its capital adequacy requirements. This, combined with Federal Government restrictions placed on borrowing by foreign nationals, has led to a dampening of lending for investment purposes.
The banks have progressively opened up their choices for loans, allowing more people to enter the development arena. More and more developers are now people who buy a house and renovate it in their own time, almost as a hobby, rather than large corporations building apartment blocks with hundreds of flats waiting to be occupied.
The flexibility of loans extends to no deposit, interest only, fixed rate, variable rate, split rate which enables investors and property developers to structure the loan to suit their own personal situation and budget.
An interest-only loan would suit a short-term investor who intends to turn the property around in a short space of time. This minimises the use of their own capital. They make the balance of the payment once the property is sold and settled.
Equity in a home can also be used by investors to acquire another property. This is a common way of building up a property portfolio over the relatively short term.. It does rely on a buoyant market to increase the value of the property quickly, thus providing the additional funds for the investor to draw on. A number of banks are open to this strategy and promote it to attract the investor market. If the investor is not able to honour their debt, at least the bank as a solid asset they can use to recoup their loss.