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