Following the recent changes in lending regulations made by the Australian Prudential Regulation Authority (APRA), mortgage broker Ross Le Quesne believes that it’s a great time for property investors to review their mortgages so they could improve the cash position of their property portfolios.
APRA’s amended guidelines aim to hinder lenders from “growing their loans from investors too quickly” and having too many interest-only loans on their books.
Since the implementation of these changes, banks and lenders are only allowed to grow their investment books by 10 per cent and no more than 30 per cent of their portfolio can be interest-only. The pricing on investment loans and interest-only loans have also increased over the past year.
According to Ross: “[In] the last 12 months, we've seen a lot of changes in … principal interest and interest-only rates, [as well as] owner-occupied and investment rates.”
“We've seen quite a big shift on a lot of the banks and lenders—[they] have been repricing their back books. What was a competitive rate 12 months ago is not necessarily as [competitive now] ... looking through these loans today,” he added.
As a result, many property investors are finding it more challenging to get additional finance so they could continue growing their portfolio.
Property investors who have a loan for their principal place of residence can look to refinance so that they can add more investment properties to their portfolio.
Ross explained: “If your owner-occupied loan doesn't have a three in front of it at the moment, you should be seriously thinking about refinancing.”
“[It] has never been a better time to look at refinancing your owner-occupied property because rates are starting from around ... 3.59 per cent on them—it's low. [Anything] over four is a long way out of the market,” the mortgage broker said.
Property investors can take advantage of attractive rates on owner-occupied loans and draw down some equity to finance another property purchase or add value to one of their assets. Moreover, by implementing this strategy, they can save a lot of money and build a cash flow buffer by letting their savings sit on an offset account.
Ross said: “When we see people refinance, it's normally not just to save money. It's because they want to buy another property or they want to do some renovations or they want to do something else … Then, they go, ‘The rate discount is a bonus.’ ”
“But, as we've seen … on an $800,000 mortgage, you can potentially save between $7,500 and $10,000 on a big, big interest rate differential.
“Should anything happen—repairs, maintenance, vacancies—[you] don't have to sell [your] properties,” he added.
While you can definitely deal banks and lenders directly, having a trusted mortgage broker on your team can add significant value to your investment journey. Instead of having to call around different lenders to review your mortgages, you can make one phone call to your broker and have them work out the best option for you.
At the moment, 54 per cent of all new loans is done by mortgage brokers—a notable growth from the 36 per cent statistic ten years ago.
For Smart Property Investment’s Phil Tarrant, aside from the benefit of receiving professional guidance, having a broker on his team also serves as a “call to action”.
He said: “When you see mortgage brokers in the marketplace … they're a call to action … We say … ‘[Let’s] get a home loan health check.’ ”
“Everyone with a home loan should be checking to see whether or not it's still the most appropriate home loan for them at any given time … Take responsibility for your mortgages.
“Your lender's not going to call up and say … ‘I just looked at your loan and ... I think we're charging you too much. We're going to take a percentage point off.’ That just doesn't happen,” the property investor concluded.
Tune in to Phil Tarrant’s portfolio update on The Smart Property Investment Show to find out how you can stay ahead of the game when attempting to get a loan from banks and lenders for a property, how a shift from variable rates to fixed rates could impact your portfolio, and how the future plans for your investment can impact the loan you require.