Happy New Year – investment lending, changes continue!
The new year has started off steadily, with January property sales and financing activity indicating we are heading into yet another busy year! Despite the fact that lenders have
commonly started to increase rates on variable loans and in some cases, on fixed interest loans, interest rates overall remain at record low levels. This is sustaining plenty of interest from buyers – the continuing dilemma for both real estate agents and buyers seems to be lack of stock supply. Prospective vendors are often choosing not to sell, holding onto their place of residence and opting instead to refinance to a more competitive home loan, renovate or
build their investment property portfolio.
Which brings us to the subject of borrowing for investment. Changes to this area over the past 18 months or so has made it a continual hot topic, with regulatory bodies (in particular the Australian Prudential Regulation Authority or APRA) continuing to put pressure on lending
institutions to reign in funding for investment, reduce investor lending growth to 10% per annum and build strong capital reserves as a buffer. Why? In short, these regulations have been introduced to slow down price growth and increase affordability for owner-occupiers; protect borrowers and lenders by ensuring borrowers can still service their loans in changing
economic times, and to standardise investment lending across the industry.
So, given the above, many lenders have since implemented the following:
- Tighter household expenditure measures, increasing minimum benchmarks for affordability.
- Require higher minimum deposits for investments – at least 20% in many cases
- Assessing existing debt – as many investors seek interest only repayments, lenders will now assess using both interest and principle repayments at a serviceability rate of up to 8% in many cases.
- Allow 80% or less of rental income in assessing serviceability. Negative gearing concessions may have also been removed/restri cted
- Most lenders now provide investment loans at a higher interest rate to home-loans, reflecting the added risk involved.
- Look at the types of investment property borrowers want to purchase e.g. apartment type (e.g. minimum size requirements), whether the property development or even a postcode is over-exposed. In these cases, theywill lend less or not at all.
- Foreign investors face even greater scrutiny and tougher lending criteria, both here and by their own regulatory bodies e.g from July 2017, Chinese investors will have to declare and explain (to their domestic regulators and ours) any funds over $10,000 used for investment outside of
- their country
If you are interested in investment borrowing, it’s even more critical to talk to an experienced and qualified broker to identify the right lender for your situation. Getting finance is not a ‘one-size-fits-all’ approach. It’s essential you find a suitable lender to support your goals, based on your financial situation and investment strategy. Here’s where the brokers experience and skill set will be invaluable in assisting you with achieving your property investment goals.
Please don’t hesitate to call on 0438 041 111 to arrange a confidential discussion to get
things started after your summer holiday break!
As always, enjoy life, work hard, play safe and remember that we are always here to help you
‘Take the Confusion Out of Lending’
Peter Vinci - 0438 041 111