It’s been almost a year and half since APRA put the foot down to intervene by clamping down the Interest Only (IO) loans. Back at that time, IO loans consist of almost 40% of the new residential mortgage lending by banks and this was seen as very risky by APRA so they’ve stepped in to intervene by setting the new rules:
1. Capping IO loans to only 30% of total new residential mortgage loans
2. Pushing bank to put an uplift on borrower’s minimum living expenses, as APRA (and now Royal Commission too, with their latest interview with various banks) suspects this was vastly underestimated in the loans approved to-date
3. Also back in 2014, APRA placed a 10% cap on annual growth of investment lending in attempt to stop investment loans
The consequence of these new rules is that banks had to tighten up the way to calculate serviceability across the board for both investors and owner occupiers. They are now a lot more conservative from lending perspective than ever so instead of being able to borrow $1 million in the old world as an example, they may now find themselves only able to borrow up to $500K.
Now it’s not all bad news – yes lending is getting tighter however with trick here is getting the loan structure right.
A common trend in the lending world is that customers are taught to focus on selecting the product via lowest interest rate rather than dependent on the purpose. This is the main reason why you will see all the ads outside banks or Mortgage Broker branches promoting the lowest interest they can ever have!
As such people usually find themselves refinancing from one to another just because at that time a specific lender provides a more competitive product and rate than the existing product. And when the client wants to borrow more to buy the next home or invest, they find themselves stuck with no further borrowing capacity and may end up forcing to sell to free up the borrowing capacity to achieve what they want. This is a consequence of bad loan structuring.
Our approach is different – we don’t focus on promoting product with rates but we focus on understanding your short, mid and long term goal, and recommending lenders and products that fits such road map. We then model out the loan structure from the lender that is most difficult to get funds from first and work our way down, so to avoid getting stuck in a position where you run out of servicing to meet your long term goal. Our aim is to be able to partner with you to help you achieve this long term goal.
By following this approach we have managed to help astute investors to continue build a property portfolio that they can eventually retire on, and also happy home owners who have bought a home with equity and now want to consider investing in property and build wealth as part of their legacy for their kids further down the track.
Reach out today via 0410 291 536 or email firstname.lastname@example.org to get your personalized loan structuring advice to help you towards achieving your goal!