Recent changes in guidelines pertaining to loans and interest rates set up by the Australian Prudential Regulation Authority (APRA) has brought about a ‘softening’ in the property market, but lenders found a way to influence mortgage volumes, attract more clients, and sustain their businesses through special rates.
The disparity between interest-only rate and the principal interest rate has consistently widened since APRA introduced new guidelines which aim to stop investment books from growing too fast. Fewer investors have since entered and stayed in the market, but Aussie Parramatta’s Ross Le Quesne believes that property investment will continue to thrive and that the mortgage industry will continue to play an integral part in its growth.
While lenders have standard pricing and advertised rates available, which follow the guidelines set by APRA, mortgage brokers can apply for pricing on an investor’s behalf and get a special rate.
According to Ross: “[Mortgage brokers] can apply for pricing on your behalf to see what [lenders are] prepared to offer. I'm getting the feeling that some of them are getting … under that 30 per cent cap now with the way the rates are priced.”
In fact, he’s starting to see better pricing and “even fixed-rate pricing for interest-only”.
The scaremongering in the mainstream media has resulted in some investors dropping off the market and more sophisticated investors picking specific areas to invest in. As the level of investment loans drop, the credit policies around investment are also starting to loosen a little bit because lenders want to be as close to the 10 per cent growth rate as possible.
Ross explained: “They want quality business, so they might have a cheap rate, but then their credit criteria to actually get that loan approved is stricter than the next person.”
“It's not that simple. It's not driven entirely by rate,” he added.
Can property investors get the opportunity to avail cheaper rates without the help of a mortgage broker? According to Ross, you’re definitely much better off with the assistance of property professionals. Otherwise, you may have to speak to lenders one by one just to find out what special rates they could offer you.
Having the help of mortgage brokers will help an investor avoid the hassle of going from one lender to another in order to negotiate rates. Aside from assisting in negotiation, a broker’s knowledge of the landscape can also help the investor’s application get approved easily.
Ross said: “You might negotiate the rate, but because [you] don't have the intricate knowledge of a mortgage broker of understanding [whether the] loan [will] actually get approved and [if it is] most likely to get approved based on their credit criteria, [then you] can just waste hours going through the rigamarole of finding the best rate, then applying but actually [getting a], 'No, sorry, sir, you don't qualify, because you haven't provided all your information up front.'"
At the end of the day, tapping into these “special deals” as a property investor depends largely on one’s capacity to see the options available to him. While dealing with the four major banks in Australia may seem like the safest choice, there are other opportunities out there for securing finance.
Ross’ final advice to investors: Look at the bigger picture. Do not limit your ability to grow a portfolio by only focusing on specific options.
The mortgage broker said: “You've got to be open to what is the situation in the market and what does this mean … [Take] a longer-term view on it.”
“Sometimes, it's just looking outside the box a little bit to say, ‘Okay, how can I secure [finance] because I know the money that I'm going to make from this investment long-term is more than the slightly higher interest cost is going to cost me?’ ” he concluded.
Tune in to Ross Le Quesnes’ episode on The Smart Property Investment Show to know more about the habits he sees among the best investors in today’s market as well as how growth in the investment industry has been enhanced by the mortgage industry in the last few years.