Last year there was a major shake up in the Investment Loan market brought about by recommendations by APRA (Australian Prudential Regulation Authority) to the banks that they should be holding more capital reserves.
All of a sudden if you had 5% or 10% to put down and start building your investment portfolio you were told to wait a little longer until you had a 20% deposit saved.
APRA made these recommendations for good reason I’m sure and I’m on board if it’s going to strengthen our industry and the country’s economy overall. It was just a major ‘buzz killer’ for anyone excited about investing in property and who were already pre-approved with one of the major banks.
If these people had a good Mortgage Broker looking after them then they would have continued on with their plans but with a different lender.
I have one example of a client of mine who was just about to buy investment property number 2. He was with a particular lender and they announced that investment loans now needed a LVR of 70%. This left him high and dry as far as his investing plans go because now he couldn’t access enough equity to purchase the next property without paying mortgage insurance. That percentage difference between a 70% and 80% LVR really put the kibosh on his plans.
Luckily I was able to provide him with alternative options and refinanced him away from that particular lender. He then had the cash available to purchase that next property and was able to proceed with his original plans.
INVESTMENT LOANS – CHANGE IS A CONSTANT
Change is definitely a constant in the investment loans market and it’s keeping this Mortgage Broker on his toes. Rates for Investment Loans are now higher than those for owner occupier loans.
Choosing the Interest Only option is no longer just a box to tick. You have to pay a higher rate now and servicing is assessed at a loan term shorter than the 30 years you probably nominated. If you choose a 3 year Interest Only period than servicing is based on a 27 year loan term. This means your repayments are assessed at this higher mark, meaning you have to have higher income to pass servicing.
APRA have also set targets for lenders regarding Interest Only loans as well so I’m finding that a particular lender this week will be fine with offering Interest Only loans but next week they won’t be but some other lender will be. This is a result of each lender trying to manage their Interest Only ratio of loans on their books.
CHOOSING A HOME LOAN FOR YOUR INVESTMENT PROPERTY
There will be different lenders offering different deals for investors and policy will vary so it will pay to consult your Mortgage Broker if you are looking at purchasing an investment property. My advice would be to pick the lender that offers the best value and suits your specific needs then get pre-approved quickly. If you hold off for too long the market will change and you’ll have to reassess your options.
The state of play right now with home loans for investment property is that the majority of lenders still require a 20% deposit from you but there are still some who’ll accept a 10% deposit, and for the time being and at least one is allowing a 5% deposit inclusive of mortgage insurance. (LMI)
If you’re setting up a loan account for an investment property you want to set things up right at the start and then leave it alone. Having a good Mortgage Broker assist you with this is key. Remember the Long Term View is what you should be taking when you’re purchasing an investment property.