The Banking Royal Commission……. WTF??

The Banking Royal Commission……. WTF??

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Banking Royal Commission

A three part blog series on Banking Royal Commission and basically WTF is going on with Aussie Banks!

Part 1
Have we all been swallowed up into this big black hole called the Royal Commission?

If you have been living in Australia for the last 6 months then you would have heard the of the Banking Royal Commission. This is the government telling the banks that they are the ones ultimately in control of the banking system and that the banks have been playing their own game for too long – including a fair bit of ‘ball tampering’. The federal government is trying to squeeze this culture out of the banks and moving forward that they start to play a fair and honest game. It should have the banks playing on a more open field and disclosing more to us but let’s see if this actually happens.

The Royal Commission is also looking into the banks gouging profits, un-fair credit card fees and their whole operation with insurance and wealth creation platforms. Check out this article from the ABC which gives a good overview.

So what does this all mean for the me, the property Investor? It hopefully means that the banks will clean up their back yard so to speak and they will look more closely into prospective clients looking for a loan and their ability to re-pay it. This is basically going to mean tighter lending, higher LVR’s and the need for greater deposits, it will also mean more paperwork with applications. The banks will probably want to see more bank statements, transaction accounts, as well evidence of the bills you pay and a more realistic monthly living expenses budget. For the every day honest law abiding Australian applying for a loan this is not going to mean a great deal other than the fact you may need a bit more cash to get you going.

What it’s not going to do is stop the strong Aussie economy, stop people buying property or stop people from going to work and living a quality life in Australia with free health care if you’re sick and a pension or unemployment benefit if you are looking for a job.
Food will still be plentiful at the supermarkets, you will still be able to afford your cappuccino in the morning and there will still be money to be made in property investing

Life will still go on!

As a property investor you should not put your head in the sand, put a hold on your investing and do nothing…… instead – redefine your limits, set and adjust goals, look at other strategies, different structures, other locations. There is always a starting point! If you can’t control it don’t worry about it, find a way to make your goals transpire.

Stay tuned for part 2 of my series – Cheers Chris

The Banking Royal Commission……. WTF??

World of Pain for Property Investors!

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investor

If you are currently a property investor or looking to invest in property in Australia the rules have recently changed. Some of you that already have investment loans will have seen the banks raise the interest rates, outside any rate rise by the Reserve Bank of Australia. There has been pressure from The Australian Prudent Regulation Authority (APRA) which regulate the banks and they have made big changes to how the banks are allowed to lend to investors and the type of lending they want to discourage.

Vesna Poljak from the Sydney Moring Herreld stated “On Friday APRA strengthened macroprudential policies, which govern how much banks can lend, within what it called “an environment of heightened risks”. Investors had feared more aggressive measures, but APRA declined to crunch the existing 10 per cent limit on investor lending growth that was introduced in late 2014.

The regulator has ruled interest-only mortgages can account for no more than 30 per cent of new residential loans to borrowers and tightened the availability of loan-to-value ratios which test the 80 per cent level. That comes after banks allowed interest-only borrowings balloon to nearly 40 per cent of all new loans.”

CLICK HERE for more on why the banks are so accepting of APRA’s loan crack down

What does this mean for the property Investor? It means that banks have added a margin to investor loans – some upwards of .50 basis points, this means a .5 of a percent increases on your investment loan rate as compared to the owner-occupied loans. Also if the Loan to Value ration (LVR) is greater than 80%, most of the major banks are not allowing interest only payments on these loans therefore making the investor make principle and interest payments. Which in many cases reduces the cash flow for the investor.

Now I understand the regulator was trying to take the heat out of the property market in Sydney and Melbourne, where it has been very buoyant, but what about the rest of the country, Queensland, South Australia, Tasmania, Western Australia and Northern Territory? Both Western Australia and NT have had declining markets and are trying for any investment to help with the economy and provide jobs.

investor

What some of these new measures will do is that the struggling Mum and Dad investor trying to get ahead and buy their first investment property and who only have a small deposit are almost priced out of the market. The wealthy investors will be ok as they have large deposits, equity and serviceability and the banks will welcome them with open arms.

What will happen to the Economy? Well with all the investors now having to pay principle and interest loans, this sucks direct surplus cash from the economy that families or couples might have spent on holidays, retail, services, renovations, school or university fees, this is where it effects everyone and jobs are sure to decrease due to the cut back in consumer spending. This is not even taking into consideration the effect is going to have on the building industry and all the jobs that it supports.

So, clearly now is not the right time to invest you would think? Maybe not….. When you start to have a shortage of supply of rental properties, the rental amounts go up, creating a better return on your investment. So for those that are still able to invest, this is a great time to do so! However there is still the oversupply of apartments in the 3 capital cities, Sydney, Melbourne and Brisbane. These need to be taken up by renters, but it will take a couple of years, so I would advise to probably stay away from the inner city apartments in all three capital cities fo a while yet. But the house market and town house market will still be very buoyant and the affordability factor will make a big play, so western Sydney, Geelong and the outer North Suburbs in Melbourne and Brisbane along with the Gold and Sunshine Coasts are going to be very buoyant in the house and land markets and existing homes doing renovations and advance strategy deals.

investor

Getting in now and finding the right finance and strategy are the two most important actions for the property investors in the Australian property market. The people that take action will be the real winners. Help us to help you to take that action and grow your property portfolio now.

Give Chris a call on 0434 449 455 or drop us an EMAIL

 

The Banking Royal Commission……. WTF??

The Banks & APRA are Tightening the Screws!

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apra tighting the screws

Have you heard the uproar over what the banks and APRA (Australian Prudential Regulator Authority – the regulator of banks) have been up to? You would have to have been under a rock for the last 12 months if you had not seen the news, heard the talk, brought a property or applied for finance to start to feel the screws bite tighter.

APRA, along with the banks have put out tougher measures for you to apply for a home loan or more importantly an investment loan.

If you are a professional investor with a multimillion dollar property portfolio then it is really no change for you – you have income rolling in and access to the equity in your property and enough money for a 20% deposit. Where we are seeing the biggest changes is if you are trying to buy your first investment property – the ‘Mum & Dad’ investors, people who are trying to get their foot in the door of the property investment game.  We are seeing good people wanting to invest in their future but can’t because of regulation and the recent changes.

home-loan-denied

The banks are putting more restrains around how you service the loan, the Lenders Mortgage Insurance (LMI) is also making it harder and the premiums are also larger. So having less than 20% deposit and trying to invest in property is going to become a lot harder.

So where do the first time investors start? Do you buy your first property as an owner occupier – hope and wait for capital growth and try to pay off as much as you can then use the equity? Do you get a loan from Mum and Dad to get you started (if your one of the lucky ones to have this option available) and this is just to help out with the deposit it doesn’t affect your serviceability.

With serviceability and the way banks now service the loan, if you’re buying an investment property nine times out of 10 you would have an interest only payment. You would want to pay off your owner occupier loan first and for tax reasons you may only want to pay the interest component of the investment loan. So why do they insist on having serviceability where you must have a Principle and Interest payment on an investment loan?

The supposed reason is to slow the growth in the property market. Veteran mortgage market analyst Martin North says expect a “slightly negative impact on mortgage pricing” from the APRA changes, but do not believe there will be much impact on the broader housing market.

“House prices are a factor of supply and demand,” North says. “There is rising supply, but also strong demand. Compared to other asset classes housing is doing a lot better, plus there are all the tax concessions like negative gearing and the ability to offset capital gains.

“The supply of investment loans will still be there. Remember that not all banks are growing their investment lending at 10 per cent. Some will see it as a target. And there’s also the opportunity for the non-banking sector to fill the gap if the majors disappear from the radar.”

apartment-just-sold-family

So it’s not all doom and gloom…… if you are a ‘Mum & Dad” investor looking to get your foot in the door, give me a call and we can have a chat about how I can make these changes work for you – it can be done you just have to be know how!

Cheers Chris

For more on these changes see this article by the Financial Review.

APRA and the Government Trying to Strangle the Mum and Dad Investors!

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Are you a property investor and worried about the new laws that APRA (Australian Prudential Regulation Authority) and the government are forcing onto the banks? Are you wondering how this will affect you directly? Can you still expand your property portfolio and if you are not yet an investor will you still be able to buy an investment property?

You may have already received a letter from the bank if you have an investment loan or an interest only loan telling you that your current interest rate has gone up. Why is it so? Well APRIA is making the banks and lending institutions carry more cash on hand against the mortgage that it has on a property.  So what the government is doing is making our banks more secure, this means that the banks needed to do a capital float to raise more money. What do investors want if they are going to buy shares in a bank? A good return! Where does this return come from? It comes from the banks pushing up the interest rates on investment and interest only loans to pay for the cash reserves they hold now.  This now slows up the consumer confidence in investing and reduces the 10% growth on investment borrowing per annum the government is trying to achieve.

The banks are also changing how a person can service a loan and making the conditions to approve the finance harder, with base rate servicing and other measures taken into account.  However it is not all bad, we are making a stronger banking system, the investment loans will be slowing down so for the active investor who has good credit and repayment history with an income to service the debt, you are still going to get a loan and your investing is not going to stop.

Yes the banks want more deposits, greater emphases on savings and good employment or business financials, but they are also inquiring more about the type of client you are. They are interested in your character, do you have a good payment history and are you a desirable client?

Remember the investor that uses their head can see opportunity in every market you just need to know where to look. If you have a good property strategist or broker they can help you with this.

If you want to know more – talk to Blue Wave Property Strategies and get a property plan so we can have you riding the Wave to Wealth!

Here’s another great article on investor lending www.domain.com.au