Investment Lending and Off the Plan Purchases
It really has never been so important to pick your lender wisely for your investment finance.
For example, there is one lender that has recently announced that they won’t allow customers access to the equity they have in an investment property. That is a major challenge for people looking to access this equity in their investment properties to fund the purchase of additional properties.
According to Karen Le Comte from Smartline Personal Mortgage Advisers Cleveland, there are an increasing number of lenders starting to do this.
“Different banks are doing different things to achieve the requirements put in place by APRA to slow down investment lending, “ Ms Le Comte said.
Some lenders are requiring a 20% deposit for an investment purchase, while others are still quite happy with a 5% deposit. Others have increased rates on investment loans.
There’s now much more work involved in finding an investment lender offering the right fit for a person’s individual situation. It’s a big job even for brokers with extensive software and industry contacts, let alone someone trying to navigate through the maze themselves.
Borrowers also need to be cautious about the amount of credit enquiries they are making as they try to find the right lender as an individual’s credit score can have a big impact on their lending ability.
Ms Le Comte states, “My whole business is about customer care and finding the right product for the client that suits their wants and needs now and into the future.”
“We have been in Cleveland for the past nine years and have built a reputation with our clients for our ‘can do’ attitude and problem solving. We are up to the challenge and are constantly educating ourselves on all of the changes taking place.”
One of the biggest concerns to come to head with these investment lending changes are off the plan purchases. Buyers need to be aware that they are receiving a preapproval for their finance, or a guide to what the bank is willing to lend them based on all of the relevant information as of the time the contract is signed.
“If there are changes to the bank or the client, this can considerably change the scenario in terms of what the bank is prepared to lend,” explains Ms Le Comte.
Keep in mind a preapproval is only relevant for three to six months, while it can take one or two years for a large development to be completed.
The issues that investors are now facing is that many lenders have significantly reduced the maximum amount they are prepared to lend for the purchase of an investment property.
“It may be that you signed up for a $600,000 property 12 months ago, when your lender was prepared to lend you up to 95% ($570,000).”
“You may find that they are now only prepared to lend you up to 80% ($480,000). That means the purchaser has to find another $90,000 of their own funds or try to find another lender that will lend a higher amount. If they can’t do that, they may have to walk away and potentially lose their deposit on the purchase.”
While it is starting to become an issue now for investors who are about to borrow, it may be even more of a problem for those who have recently signed a contract and won’t have settlement on their property for 12 months or so.
Ms Le Comte explains, “Most lenders were comfortable with their policies and criteria on investment lending – this move is very much a response to the demands and regulators to limit the amount of money being borrowed to purchase investment properties as previously mentioned.”
This situation really highlights the importance of working with a broker. While your situation might not work with one lender, it may well do so with another. A quality mortgage adviser will know which lender is going to be the most receptive to your situation and loan application.
Smartline Cleveland is here to help and there is no charge for their services. Call them on 07 3821 2539 to discuss your financial needs and options.
Smartline Home Loans Pty Ltd and their representative have made every effort to ensure that the information is free from error, neither Smartline nor its representative makes any representation or warranty as to the completeness or accuracy. Readers must decide if this information is suitable for their personal situation or seek advice.