Starting to think you have missed the investment boat? Think again.
We are all well aware the good guys at the banking regulator, the Australian Prudential Regulation Authority (APRA) are expressing concern that investment lending is too high.
As a result of this apparent concern, a lot of the mainstream lenders have changed their borrowing criteria for investors in some way.
The lenders have chosen a variety of methods to curb the investment market.
Whilst most of the main lenders have increased the interest rates on investment loans, some have taken matters further by reducing the maximum Loan to Value Ratio (LVR) on investment loans from 90% to an LVR of 80%.
We have even seen one lender temporarily put a halt to all new investment lending (though not SMSF lending).
There have also been a mix of other measures were taken, such as increasing the interest rate used to assess your serviceability (they have done this by increasing the amount added to the standard variable rate from 2.25% to 2.75%)
While others have stopped interest rate discounts for all interest only loans, regardless of the nature of the loans (owner occupied or investment).
There are some ways to work with the lenders to improve your position when it comes right down to it they do still want to lend money. Here at Awesome Lending Solutions we have been watching the changes that are coming about in the market & thought we would share some of the tips we discuss with our clients every day.
1) The most efficient way to reduce your LVR is to save for a larger deposit. If you already have a property, make sure you are building the equity up (by principal and interest repayments), so you can release this cash later to help fund the next purchase.
2) If you’re a first home buyer and have decided to buy an investment instead of an owner occupied and are having trouble saving such a significant deposit you may want to look at a family pledge option. This is where your parents offer the equivalent of 20% of the property value that you are looking at purchasing by using the equity in their home.
3) It’s important to understand the valuation process and how to minimise the risk of a valuation coming in low and jeopardising your loan application.
There are lenders that will determine the value by using the Contract of Sale.
Use these lenders and you lessen the risk of paying Lenders Mortgage Insurance (LMI) or potentially having the loan declined due to a low valuation
4) Reduce the limit on your credit cards (if your limit is $10,000, the banks will use this figure even if you only use a portion of this every month).
You may also want to ensure that you choose a lender that will use interest only repayments on existing debts or principal and interest without adding a buffer.
This will help address the issue of serviceability.
5) Use a broker like an Awesome Lending Solutions broker as they know all the ins and outs of how every lending institution on their panel works, and they should be up to date on the changes of the day.
6) It’s worth remembering that having several loan rejections on your credit history can be damaging too, so be careful and do your homework before you apply for a loan and make sure it fits!
Our final piece of advice to investors don’t let the changes in lending criteria influence your decision to invest.
Run through the numbers to make sure it’s a sound investment and you may want to review where your buying as we saw a brief period where the lending rules were harsher for NSW than the other states.
If you would like Awesome Lending Solutions to review your loan for you, please feel free to click on the below link & we will be in touch shortly.