May 21, 2014
The Investment market is booming.
But lenders certainly have fine print to meet when it comes to investors borrowing more than 80% of the value of the investment property.
Your Mortgage Choice broker from Stafford, Maree Woodcock, offers
4 tips to help you avoid losing your investment dream to a lender's decline stamp.
- Know the Lender's Mortgage Insurance fine print, and choose your lender accordingly (ask your broker on this one, or read on for more detailed information below.)
- Location, location, location - it can make or break a deal
- Size Matters - especially if the property is tiny
- High Density Apartment complexes, what you need to know
We'll delve a little deeper into those tips further on.
Why the investment boom?
Investors are currently accounting for more than one in every four loans written, which is higher than in previous years and equates to almost 30% of all home loans written.
Good news for investors
With interest rates still hovering around record lows, and property prices on the rise, it is unsurprising to see an increasing number of investors entering the property market at this point in time.
- Property values and rental yields are climbing
According to RP Data research, despite being a little out of step with each other, over the last calendar year, for the capital cities combined property values have climbed 11.5% and rental yields have grown 2.3%. It's no wonder savvy investors are jumping on that train for inner city apartment investments.
- Interest rates are still historically low, and set to stay there
With the Reserve Bank indicating that the current period of stability we are experiencing will continue for a prolonged period, it is increasingly tempting for investors to be encouraged into the property market, and more can afford to get in.
Why lenders decline finance on specific investment properties
It is tempting to jump on board with the fast paced investment train, but what if all you can afford is well, not much, so you are limited to lower priced, and possibly not so greatly located investment properties.
When investors purchase small units in large apartment complexes, or properties that are in flood zones, or near power lines as an example, they may find themselves with a decline from the lender, with what seems like not such a great reason for it.
It seems harsh, but if a lender can't get insurance on your loan, they will decline your application, end of investment story.
Often these type of property purchases can still draw you in with lower pricing, and awesome views perhaps. Some can still be great investments.
The trick is to know which lenders to approach first, so you don't end up falling short on the finance clause, and losing that savvy investment before you get a chance to enjoy the investment windfall, or before your tenants can pay high rent to enjoy that view.
Lenders, and Lender's Mortgage Insurers:
They can be picky when it comes to borrowers purchasing properties that are small, and perhaps are not in so great a location, or for borrowers who need to borrow more than 80% of the value of the property.
Meaning; It pays to do your homework before you get your heart set on that gorgeous, but tiny 43m2 apartment in a block of 100, with a fantastic view that will have tenants lining up to pay off your mortgage for you.
Unless of course, you know which lender to use to get the finance for it, right from the get go.
Your broker can steer you in the right direction in terms of which lenders to apply with, if you do want to consider one of these property type options, and choose to borrow more than 80% of the value.
Borrowing more than 80% of the value of the property -
Let your broker to do the homework for you
As with any property purchase, diving into it as an investor comes not without caution. If you do need, or want, to borrow more than 80% of the value of the property you are buying, then it is essential that you do your homework, or speak to an expert.
Four tips on how to avoid a lender's finance decline:
Be mindful of these things when looking at investment properties, as a minimum:
1: Lenders Mortgage Insurance (LMI) is a cost that you pay, on behalf of your lender, for their insurance on your loan.
All of Australia’s lenders have a chosen Mortgage Insurer, and each have different requirements for borrowers who intend to borrow more than 80% of the value of a property.
LMI protects the lender in the event that you default on your loan. It does not protect you.
2: Location, location, location:
Properties close to transport, shops and amenities makes it easier to find tenants for your dwelling.
Avoid properties that are heritage listed, near high voltage power line or in flood affected areas so fencing the property does not become an issue, or worse still give the Lender’s Mortgage Insurer a reason to hesitate when approving finance.
3: Size matters:
Studio or one bedroom apartments are in high rental demand currently as single tenants or couple’s increasingly want their own space. They are also tempting for investors as their price point often fits in better with an investor’s budget.
However, despite the temptation, ensure your apartment is larger than 50m2 as some mortgage insurers won’t approve finance for properties that are smaller.
Some Mortgage insurers will also allow car parks or a balcony to be included when calculating the size of the dwelling, but others will not.
4: High Density Apartment blocks:
High density is usually classified as three to four stories high with more than 30 units.
The option of a small apartment might be tempting, but what about small apartments in high density apartment blocks?
Some lenders will not finance this type of investment. Your broker will be able to identify which ones will and which will not and why.
If you can’t resist the temptation of that tiny apartment with city views, make sure you check your best lender options with Maree Woodcock, your local mortgage broker from Stafford.
Our experts will be able to let you know which lenders and their respective mortgage insurers are more flexible than others, before you lock yourself in to a contract, or get hit with a decline stamp.
If you want to learn more about your home loan options, call Maree Woodcock or the team at Mortgage Choice Stafford on 3366 9982 or visit www.mortgagechoice.com.au/stafford1.
Maree can also be contacted at our office at 85a Mawson Street, Stafford Heights, or via email at email@example.com.
If you would prefer to call her direct, her mobile is 0421 866 700, or visit our facebook page and leave a comment: http://www.facebook.com.au/mortgagechoiceashgrove.
If you found our information useful or know someone who might, please share, we’d love to hear from them too.
This article is for general information purposes only. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances.