Finance advice
Victor Kumar

Is your property portfolio ready for the new credit regime?

By Victor Kumar

If you don’t already know, the landscape for property investors changed substantially this week, but it has nothing to do with the property cycle or the supply and demand issue some areas are facing.

Blogger: Victor Kumar, Right Property Group

Instead, property investors have been given a financial handicap.

So how does it impact you? Well, to understand this, we need to look at how the banks were qualifying you for finance prior to this new regime coming in.

They had a “qualifying” calculator, which took into account your income, living expenses and loan repayments.

The loans you were applying for were always 'loaded' (or "stressed" in lender speak) at a higher rate, usually between one to two per cent above their standard variable rate. Some lenders took an interest-only repayment into account whilst others took a principal and interest payment approach to arrive at that expense.

Other financial institutions' debt was usually taken at its actual repayment amount rather than the “stressed” amount.

Essentially, this meant that if you had say $1 million debt with one lender, they would be able to lend you a lot LESS than if you spread the love around. Other lenders however would be able to lend you a lot more!

Enter the new credit regime.

Under the new regime ALL loans - regardless of whether they are with the lender you are applying with right now or with a different bank - will be calculated at a higher stressed rate, at 7.5 per cent, at principal and interest repayments. (The actual interest rate that you would be paying hasn’t changed….yet, but the qualifying rate has changed substantially.)

Put simply, if you had $1 million in debt, the lender would have previously allocated $50,000 a year to service that debt if it were with another lender. NOW, that debt would be allocated at least $75,000 a year in expense to service the same debt, regardless of whether you have a five-year fixed rate of say 4.79 per cent interest only or if you have a variable at say 4.3 per cent.

This will have a severe impact on your ability to qualify for loans, especially when you have a multiple-property portfolio, most of which are negative to start with.

To cater for these changes, your portfolio needs to be adjusted - you may need to bring forward any construction or renovations that would substantially increase your cashflow, and also coming into the tax season, if you own a business or work on commission, your accountant may need to adjust how you report your income so that you can continue building your portfolio.

For some, it may mean that you now need to take a break, and wait for the finance market to stabilise, before you add to your portfolio, or start consolidating your portfolio.

Since November last year, I have been working with the my clients who all have multiple properties, placing properties in their portfolio to help counteract the negative impact on portfolio progression that this new finance regime is going to bring in.

Given that many brokers and indeed quite a few investors aren’t across the constraints this will bring to their property investing ambitions just yet, this would be the ideal time review your strategy to re-align with the changing game plan.

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About the Blogger

Victor Kumar

Victor Kumar

Nearly 15 years ago Victor and his wife came to Australia from Fiji with just $4,500 in their pockets. They worked hard as radiographers but realised this was not the way to prosperity. Victor embarked on a process of building wealth through property. He has amassed a substantial property portfolio, and is still actively buying and renovating property. His recommendations are based on what works in today’s market, not what used to be effective a year or more ago.

Victor’s experience, finance background, and financial planning qualifications mean he is well equipped to negotiate with banks – helping them find ways to say “Yes”. He has also invested significant time and money in learning from other property investment experts and knows how to make a portfolio work.

Of course, Victor has made a few mistakes along the way but these have made him wiser – and he’ll let you learn from his mistakes so you don’t need to make them. His goal is to help you achieve your financial goals by sharing his extensive knowledge about financial structures and investment property.

Victor is now sought after as a keynote speaker at several property investment seminars and is acknowledged by his peers as an expert in the industry.

http://www.rightpropertygroup.com.au/

FROM THE WEB

podcast

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In this episode of the Smart Property Investment Show, Dominique Grubisa joins host Phil Tarrant to share her personal story which saw her hit rock bottom with excessive debt during the GFC.

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Dominique unpacks how, by relying on her background in law, she was able to overcome that debt and in doing so develop a unique investment strategy which she believes many can utilise today.

Dominique discusses distressed properties, and how she goes about finding them in order to buy property well below market value. She shares the process of identifying distressed properties as well as the controversy surrounding this buying method.

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:

3 big property investment myths busted open
5 steps to take on low-risk property developments
Securing finance after life-changing events: ‘Cash flow is key’

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More than just bricks and mortar, experts often regard property investment as a ‘game of finance’. As such, a good finance strategy can lead any investor to success.

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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 into this episode of Property Showcase!

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

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    In this episode of Property Showcase, Michael Beresford joins editor of Wealth James Mitchell to unpack why recent political changes are not reason for concern for Australian investors.<\/p>\r\n

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Many investors who would have been successfully approved for finance last year are struggling now to either begin or continue their property investment journey because of the current financial climate.

In this episode of the Smart Property Investment Show, broker John Manciamelli and Momentum Media director Alex Whitlock joins host Tim Neary to discuss how APRA changes and the royal commission have resulted in a tighter lending economy and what that means for Australian investors.

They discuss what traps investors should avoid if they are trying to obtain finance, the four key growth drivers in a property market and unpacking trust structures while revealing one type of trust that you should miss.

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:

How technology is changing the lending environment
Lessons from a falling market
APRA investor measures have ‘run beyond their usefulness’: industry body

 

AREAS MENTIONED:

Hobart
Bondi
Deception Bay

 

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More than just bricks and mortar, experts often regard property investment as a ‘game of finance’. As such, a good finance strategy can lead any investor to success.

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Getting finance approved in this tightening lending environment

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