July 22, 2015
In response to concern from banking regulator, the Australian Prudential Regulation Authority (APRA), lenders have changed their borrowing criteria for property investors.
These changes include:
- reduced discounts on investment and interest only loans,
- limited Loan to Value ratios (LVR) to 80-90% for investors,
- adding 2.25 to 2.75% to a typical variable interest rate for investment loans.
Property expert John McGrath offers six tips to increase your borrowing capacity for investments
- The most effective way to reduce your LVR (Loan to Value ratio) is to save for a larger deposit. If you already have a property, make sure you are building the equity up (by principal and interest repayments) to release this cash to help fund the next purchase.
- Another deposit option is using a parent’s property as a couple of lenders allow 20% of the purchase property to be secured by a parent’s property
- It’s important to understand the valuation process and how to minimise the risk of a valuation coming in low and jeopardising your loan application. There are lenders that will determine the value by using the Contract of Sale, use these lenders and you lessen the risk of paying LMI or having the loan declined due to a low valuation.
- Reduce the limit on your credit cards (if your limit is $10,000, the banks will use this figure even if you only use a portion of this every month); and choose a lender that will use interest only repayments on existing debts or principal and interest without adding a buffer.
- Use a broker as they know all the ins and outs of how every lending institution on their panel works.
- It’s worth remembering that having several loan rejections on your credit history can be damaging too.
Call us to find out how we can help you secure your investment loan. We're always happy to help!