August 18, 2015
Off the plan – a wise investment?
Over the last 2 months, many of Australia’s lenders have made some sweeping changes to their lending policies.
While the vast majority of policy changes have been targeted at investors, there have been some more general changes made which apply to all buyers.
These changes include (but aren’t limited to) modifications to servicing criteria as well as loan to value ratio (LVR) restrictions and interest rate increases.
So what do these changes mean and how will they affect you? In a nutshell, most of these changes work to reduce a potential buyer’s borrowing capacity and/or make it harder for some investors to obtain finance.
Take increased floor rates for example: some lenders have significantly lifted the floor rates they use when determining whether or not you can service your loan. While your mortgage interest rate may be just 4.5%, most lenders have a floor rate of 7% or above. They will then use this rate as a benchmark and check to see whether or not you can easily make your mortgage repayments if interest rates were 7% or above. They do this to make sure you won’t default on your loan if interest rates rise.
Some borrowers may find it difficult to prove they can service their loan at a higher floor rate and, as a result, their borrowing capacity is reduced.
But while owner occupiers may be affected by some of the policy changes made by Australia’s lenders (including increases to floor rates), there are a lot more changes that are designed to only impact investors.
For example, some lenders have increased their interest rates in recent weeks. That said, the vast majority of these rate hikes only apply to their suite of investment home loans.
Another change that largely affects potential investors is the reduction to LVRs.
Some of Australia’s lenders have recently reduced their maximum LVRs to 80% for investors, which may negatively impact many investors, particularly those looking to purchase off the plan properties.
Investors who are in the process of purchasing off the plan properties may find that while they received a pre-approval from their lender when they started the process, that lender has recently changed their lending policy and will no longer be able to approve the loan because they have reduced their maximum LVR.
While this issue certainly won’t affect all investors purchasing off the plan, if you are going through the process currently, it pays to speak with a mortgage professional (such as myself) to see if your home loan is going to be impacted.
Indeed, with so many lenders making so many changes to their lending policies, the home loan market has become more complex than ever before. As such, it is now more important than ever before to talk to a professional who understand home loans and the property market.
At Mortgage Choice, I have access to more than 25 lenders and literally hundreds of home loan products, so I can help you navigate through the current lending changes to find the right lender and loan for your needs. Further, I will do all of the legwork on your behalf so that you won’t have to worry about a thing.