May 20, 2014
With investors currently accounting for more than one in every four loans written, it is fair to say this market segment is booming. Investors currently account for almost 30% of all home loans written – higher than previous years.
It is unsurprising to see an increasing number of investors entering the property market given that interest rates are currently hovering around record lows and property prices are on the rise.
Research conducted by RP Data found dwelling values climbed 11.5% across the combined capital cities over the last calendar year, while rental yields grew 2.3%.
While the growth in rental yields is largely out of step with dwelling values, both are still climbing, which would be considered good news by investors.
Further, interest rates are currently sitting at historical lows and the Reserve Bank has indicated that we could be facing a prolonged period of rate stability.
While these factors have and will continue to encourage investors into the property market, for anyone who is considering investing in property in the near future there are a few things to be mindful of.
If you are an investor and you intend to borrow more than 80% of the value of a property, there are definitely a few things you should be wary of.
Those who borrow more than 80% of the property’s value are required to pay Lender’s Mortgage Insurance, which protects the lender in the event you default on your loan. All of Australia’s lenders have a chosen mortgage insurer and each of these insurers will have different requirements for borrowers who are looking to qualify for a mortgage with an LVR in excess of 80%. In other words, one mortgage insurer may require something that another does not.
Location, location, location: When buying an investment property, location matters. If your property is not close to transport, shops and other amenities, it may be hard to find tenants for the dwelling. Worse still, if the property you are looking to purchase is heritage listed, situated near high voltage power lines or in a flood affected area, you may have trouble financing the property. There are a variety of reasons why Australia’s mortgage insurers may be hesitant to approve finance for a dwelling, so it’s best to check with your mortgage broker before agreeing to purchase a property.
Size does matter: If you are considering purchasing a studio or one bedroom apartment, be warned, some mortgage insurers won’t approve finance for properties that are smaller than 50m2. And while some mortgage insurers may be happy to count a car park or balcony when calculating the size of the dwelling, others will not. I will be able to let you know which lenders and their respective mortgage insurers are more flexible than others.
A dense idea: Some lenders will not finance a unit located in a high density apartment block. High density apartment blocks are usually three to four stories high and have more than 30 units. A mortgage broker will be able to explain to you why this is the case and identify which lenders will lend and those that won’t.
If you want to learn more about your home loan options, call me on 04322 81837