If you are a property investor, involved with the complicated matter of investment lending, reading this article will help you decipher the changes that have confused and overwhelmed professionals in recent years. As property investors continue to feel the pinch of changing regulations and expensive prices, Home Loan Cash Back are giving you the resources that you need to update your education, and take control of the market.
Why has Investment Lending Become So Expensive?
A couple of years ago, the bank regulator, APRA, applied new rules to the banks in Australia. These rules were put in place to curb the rate of investment lending growth in Australia. The change occurred because some people believed investment lending was prompting the surge in property values, particularly across Melbourne & Sydney.
These new rules put a cap on the banks being able to only grow the total investment lending they can provide by 10% each year. Given the numbers of investors in the market, the only way the banks have found to slow investors down, is to put the rates up. Right or wrong, this is the new norm for the market.
If you want to make sure that you’re getting the best deal, then you need to have the experts on your side. Home Loan Cash Back can help you to track down the best options for investment, so you don’t have to worry about your money.
Interest Only vs Principal & Interest Repayments
Another area of focus for the bank regulator, APRA and also ASIC, is interest only lending. Their concern is that too many Australians are paying interest only and leaving their principal debts untouched. While many accountants and financial planners might recommend that people choose interest-only solutions for their investment loans, there are potential problems.
Interest only repayments can improve cashflow, and promote taxable benefits. However, the banks have also begun to charge more to customers who take this route, to meet with regulator recommendations. If you want a better deal on your investment lending solutions, you may need to think about paying both principal and interest repayments. Alternatively, consider locking in fixed rates when the right opportunities present themselves.
Bank Affordability Guidelines are Getting Tougher
As regulating bodies place increasing pressure on investors, it’s becoming more of a challenge to borrow the funds required to expand a property portfolio. In fact, many people are unable to even refinance their existing loans to access better deals.
The banks will generally apply a ‘benchmark’ rate to all your lending. This rate usually lingers somewhere between 7% – 8%. The banks will calculate your ability to afford the loan on the assumption of a rate that’s up to 8%. Additionally, when you focus the first five years of your repayments on interest-only, even if you’re applying for a 30-year loan term, your affordability calculations will be completed over 25 years.
There are still some opportunities for growth available with lenders in today’s market. Though it’s a challenge to find the right offer, Home Loan Cash Back can help you to achieve the best results, by browsing the options for you.
What Should You Do?
As an investor in today’s fluctuating environment, the best thing you can do is take action. Work with an experienced professional to investigate the best options available for your circumstances. When a solution that offers a better deal appears, proceed as soon as possible to take advantage of the circumstances.
As changes become more drastic for investors, those who procrastinate, or sit on the fence may miss out on some crucial deals, due to the fickle standards of lenders. Don’t delay. Make sure you send an enquiry to Home Loan Cash Back today!
