Finance advice
Otto Dargan

Banks put the brakes on mining towns

By Otto Dargan

As investors flock from mining town to mining town the banks have moved to stop the speculation. Can you still finance your investments?

Blogger: Otto Dargan, director, homeloanexperts.com.au 

As mining areas such as the Pilbara in WA and Mackay in QLD come off the boil, it’s high time we took a look at what the banks think of mining areas and their risk as an investment.

Several banks now have official, or unofficial, policies which are limiting investors who are seeking a quick gain from buying in mining areas.

Keep in mind that you as an investor may benefit from large price rises, however the bank doesn’t. Yet they do take a risk that if prices fall then they may be left exposed.  Their interest rate is the same no matter where your property is, so they simply aren’t as comfortable taking the extra risk for no extra reward.

So what are the changes and how do you need to change your investment strategy?

Rental income assessment has become a little more complex. If you are getting 15% returns then fantastic! However the banks aren’t sure how sustainable these yields will be so they tend to only use part of the rent in your assessment.

Lenders like AMP, ANZ and BankWest cap the rental yield between 4% and 10% whereas Westpac tends to use only 60% of the rent received when calculating your ability to afford the loan.

Banks don’t want to see you reliant on high rental yields to make your loan repayments. If you have a good income from your job then this won’t be a problem.

LVRs have dropped across most lenders. Specifically for investment loans, if you are buying a home to live in then you may not have the same problems.

ANZ and Westpac have a list of postcodes which contain single industry towns in which they limit the percentage of the property value that you can borrow.

Can you still borrow 95%? Technically 'yes' with some lenders, however in reality it is going to be harder. You’ll need to have a good income, good asset position and not to have all of your properties in one town.

The real question is: do you want to borrow 95% in a mining town? It’s a big gamble and if you don’t have the funds to back you up then you may find yourself in trouble if the area you purchased in has a slump.

Overall these policy changes are a good thing. Investing in mining towns is a great strategy for people who have an understanding of the mining industry and experience investing. And these investors still have access to funds.

However there needs to be some common sense checks and balances put in place to prevent bubbles and people getting their fingers burnt.

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About the Blogger

Otto Dargan

Otto Dargan

Otto Dargan is a two-time winner of St George Bank's 'Australia’s Brightest Broker' competition and the managing director of specialist mortgage broker homeloanexperts.com.au

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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
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Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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