We introduce you to mortgage advisor Tom Morison from Smartmove who actually worked in our office within the sales and property management divisions.
Tom says even though there has been lots of changes within the lending environment it is still possible to find the best solution for you. The banks and lenders are making daily changes and you need someone on top of everything to give you the best advice.
Being in the front-line trenches of the lending marketplace I have experienced a vast amount of change in the past several years – the current environment is the tightest credit marketplace that we have seen in the industry. To give you an idea of what has changed since December 2014 – refer below:
- Investor loan book growth hand brake – Banks had a 10% limit imposed on the growth of their investor loan book. We are used to the banks throwing money at people but these days this is not the case (a day I never saw coming). This hand brake has been removed but the banks are still generally edgy around approving investment loans.
- Investment vs owner occupied –Three years ago, there was just one loan interest rate. There was no difference in interest rate for a home loan or investment loan. Now investor loans can be 0.2-0.6% higher.
- Interest only vs principle & interest – As with the prior point, banks did charge the same rate for Interest Only or P+I. After APRA got involved, they now charge more for Interest Only. Sometimes it is a small amount like 0.1% but sometimes it is as high as 0.50%. Like Investment loans, the gap is getting bigger. Bank borrowing capacity models are making it harder for interest only loans now and you can borrow more as principal and interest.
- Investor loan max loan to valuation ratio – Some banks will not lend on investment assets more than 80%. This is far cry from days of 97% exposure.
- Certain postcodes or property sizes aren’t acceptable to some banks –Lots of the banks have a larger blacklist of postcodes that they are not comfortable with at all or at reduced loan to valuation ratios. Anything less than 50 square metres can also be an issue.
- Interest only harder to have approved & you can’t just extend the interest only period – In the past you could get 15 years interest only. Most of the time we are now capped at 5 years interest only. Also, previously you could extend interest only with one form or a call to the bank (no new reassessment) but now if you want to extend interest only then you need to go through a whole new assessment/refinancing process.
- The way the banks look at extending home or investment loan debts– This is one of the biggest changes from previously. Bank borrowing capacity models used to use the actual repayment of mortgages you had elsewhere (or even with that bank). So if you paid $2,000 per month that is what the bank used. These days no matter what your repayment is, above 7% is used for the interest rate (& even if the repayment is interest only they use P + I as the repayment amount). This makes a huge difference to investors. If you are paying $2,000 per month the bank is using $5,000 per month or more.
- The rate the banks assess the new loan –Banks use what are called assessment rates. Most of these are now over 7% (normally 7.25%). So even though rates are as low as ever before, banks are making sure you can repay the loan at 7.25%. Before this assessment rate could have been 5-6%. This has a significant impact on borrowing capacity.
- Retirement or exit strategy – Borrowers in their late 40s & 50s, now need to have a clear exit strategy to repay their debts. This previously wasn’t needed.
Even though all of the above has changed, it is still possible to find the best solution for you. You just need to:
- Plan your property purchasing journey more carefully
- Get in touch with an expert mortgage advisor who can assist you in navigating this complex credit environment.
- If you feel that I would be able to offer some insight into your scenario or situation please do not hesitate to contact me.
Tom@Smartmove.com.au | 0409-88-00-31
Click here –> Tom’s profile