Weekly wrap - Friday 4th September
Welcome Spring: temperatures, but market as well, start to warm up!
In general across the market, there definitely is a shortage of stock. It is starting to become a bit more of a sellers market, there's some competition. Traditionally, this happens this time of year. But more so than we've seen maybe in the past couple of years. It's kicked off a little bit earlier, which is exciting to see.
When you need approval, organisation is key!
We’d like to enhance the importance of pre-approval. A lot of that really is just about being organised. We know that lenders are taking longer to get things done at the moment. So better submission quality is essential.
For instance, when we get your applications ready, we’ll need things like the most up-to-date documents. Banks need to see the most recent pay deposit going to an account, the most recent rental statement, etc. They want to check income, they want to make sure things are still in flow. There are areas that have definitely been more affected than others during COVID and those are the areas they want to check in on. They want to make sure you're still getting paid the same way you were.
In the same way in the self-employed space, the banks are requesting the same type of context. They want really up-to-date information to make sure they are lending money responsibly and that you do have the ability to repay your loan. Banks won’t only look at your 2020 tax returns, they need a snapshot of the last 12 months, because you could have had all of your income earned in the first three months of the year and then stopped trading. So you will need to provide your fall Business Activity Statements (BAS). Lenders want to make sure that things are back up and running at the speed they should.
It is key to get all those documents ready to get through the approval stage efficiently.
How your broker can help you structure your loan
Investors come back into the market! And quite interestingly, contrary to popular belief, interest rates are not the main reason why. It is not all about the rates when it comes to investing.
Firstly, it's about serviceability. We need to make sure that you are able to borrow what you are looking to borrow, therefore checking your current position, existing lending, with the new purchase that you're looking at, rental income included. Your borrowing capacity, that is serviceability.
Secondly: the valuation, because we've got to get the valuation on the existing property. Do we have the equity that we thought we had to then be able to proceed?
Then third, is interest rates. In that line.
You then are contemplating two different ways to structure that.
You can either do it by releasing equity from the property as part of the deposit for the new one, or you can cross-secure properties together. Obviously, from a bank risk point of view, to hold as much security or to cross-collateralize or tie property together, reduces their level of risk. But when you're looking to purchase another property, and may need to go to another bank because of serviceability, or because of valuations, and all of your properties or securities are tied together, it is really important to understand the time it is going to take to unlock all of that or pull out all the parts again. So you need to get that structure right if you are looking to build a portfolio or if you have one at the moment, so that when you want to move forward with other purchases, you can do that quite smoothly and have the flexibility to potentially look at different bank options and we're not so heavily reliant on a portfolio of valuations or one particular bank.
As the portfolio grows, one property may be out performing another. One property in particular might be underperforming and that can drag down the whole portfolio. A lot of that is bank 101. We want the client to have that control back in their hands and have an ability to use the multiple lenders.
You don't want three investment properties secured against your own own occupied property. If you decide you want to upgrade or up size your Principal Place or Residence in the future, take advantage of either some renovations or need to put a new kitchen in, you do not want to reevalue four properties. It's a real issue, which we have seen these last couple of weeks.
A lot of the value that we help provide are all of these things that we will work through before even suggesting or talking about a recommendation or a particular lender that might come into play.
So please take time to get organised before you sign a contract, and get in touch with us, we’re here to help!