As you would have already heard that, you know, there have been some announcements made and there’s potential that the lending would be, loosening a little bit.
Lenders on the back of APRA directives had made changes to borrowing capacity over the last couple of years and the changes have been going on for five years.
What has been the case?
Many times when people reach out to us, they say, “I know I can make these repayments”. And when it comes to borrowing capacity, unfortunately, doesn’t quite reflect the same level of savings.
People think that it’s really a lender issue. It’s not really a lender issue as such, it’s more of APRA regulations which have limited or who tried to put brakes on, on borrowing capacity for people.
Due to the restrictions that APRA if you were paying, 4% interest rate, APRA wanted you to be assessed on a minimum of 7% Principal and interest in repayments. This means whilst people can afford the repayments on paper, it’s not doable according to APRA based on this 7% assessment rate.
What are the proposed changes?
APRA have said that the 7% minimum floor rate will go and now it’s under public consultation on what this new floor rate would be. Of course, the outcome will be improved borrowing because every lender will be able to decide on their own floor rate.
This is still under consultation and with lenders for review. We will know in about four weeks on how this is implemented.
What it will mean for you?
>> For home buyers this will be improved borrowing capacity.
>> For investors:
First-time investors with their home who want to start the investment journey may finally have some reprieve to enter the market.
There could be investors who are stuck with existing bad structures. They might have the wriggle room to change that move around to a different lender.
Additionally, many borrowers are coming off their interest-only periods very shortly.
So there would be potential to extend out that interest-only period. And whilst it’s important to pay off your properties, your home is your main asset that needs priority in paying off. So there’s nothing wrong in having investment properties at interest only if you know you have a home that you need to pay off.
And then it’s also a strategic thing really. In the strategic planning discussions that we have with our clients around this is the key focus: whether you should do P& or should you do interest only and reasoning for why one may work out for, in each individual circumstance.
What it could mean from a lender’s perspective?
This could mean increased competition between lenders because they have their own policy, and then could be potential price wars between lenders with which will have a direct impact on how much people they could borrow and what people could borrow basically.
What do you need to consider?
If you’re a home owner, and you’re paying lenders mortgage insurance, you do obviously need to make sure you choose the right bank upfront. Especially because once you have paid LMI, you will have to stick to that particular lender for some time.
If you are in any are a homeowner who’s looking to build that property portfolio, you need to select lenders strategically, one after the other. Strategically select banks depending on their borrowing capacity and going from one bank to the next to the next to expand that portfolio.
If you’ve been sitting on the sidelines, it may be time to start thinking about your next move. Ultimately it is about your long term goals and your aspirations and how it’s going to fit into your life circumstances.
Policies could come, rules could change. Tax Laws could change, let’s say 10 years, 20 years or 30 years down the line. How would this asset base really support you?
And do remember that you control your own economy.
We can complain about what the government is doing, what the economy’s doing. But you make your future. So make sure you keep control of that and don’t hand it over to anyone else.
So if you are a home buyer or an aspiring property investor, then let’s chat. Send us an email or call us. We look forward to speaking with you.
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