A Christmas Gift For Investors...
Another year is almost gone and, if you haven’t already, no doubt you will be putting up your Christmas tree in the next few days. We trust your festive plans are going well. There aren’t many sleeps left now…
With the focus on rising interest rates for most of this year, we have a little surprise for investors in this update. A nice little Christmas gift is waiting for them.
According to the Finance review, many established investors are already realising the benefits of increased rents, however new investors to the market have experienced some challenges.
Rising interest rates since May have seen new homeowners and investors having a squeeze in their borrowing capacity. If you were looking to purchase a property prior to May valued at say $850,000, your capacity to borrow today could be as low as $500k.
With many investors believed to be using property to boost their retirement savings, this has created unprecedented factors for the type and location of property investment considered.
The good news is that one of the majors has announced they are increasing the proportion of rental income that can be used to qualify for a loan or those seeking a larger loan. Other lenders may follow suit, and there are several lending institutions who are offering cash back incentives for both owners and investors to refinance with them.
What does this mean?
Your salary and typically about 80% of your gross rental income have been the lenders’ benchmark for many years when assessing your serviceability for an investment property loan. They assume the balance of the rent will be used for items such as:
Property management fees
Repairs and the shortfall of rent when the property is vacant
Download our topic sheet on How To Protect Your Loan Serviceability Reputation.
This is about to change.
At the time of writing, one of our majors has taken the first step to increase the serviceability criteria to 90%.
By moving gross rental income considerations to 90%, combined with the increasing rental amounts investors are achieving, this may allow investors to either borrow more or service better.
With vacancy rates at record lows across most regions of Australia, Tim Lawless, Research Director of Core Logic, says “It is not surprising to see lenders focussing more on this sector of the market.”
As immigration of skilled workers continues, overseas students returning to Australia and locals returning to major cities after lockdowns, vacancies are recorded to be the lowest (less than 1%) since 2006.
With not enough housing stock to service the market demand, many economists are suggesting that property investment stacks up in our current environment.
Of course circumstances are different for all borrowers. There are many factors that need to be taken into consideration before jumping into the decision of investing in property.
If you are taking some time off over the holiday season, it might be a good time to review your finances and discuss your plans with us for the coming year.
End of year tip!
With 50% of borrowers still locked into low interest rates for a while longer, you may not realise the financial pressures of some other Australians. Be careful with your spending this season as our economists do not see interest rate rises slowing until the middle of next year. Every dollar you save today may be your saviour when you come off your fixed rate in the next year or so.
Let’s finish off with the best news ever!!!
It’s official! We are now open for entries in our new competition.
With international travel now back on everyone’s radar, we have decided to offer our friends, family and finance community an opportunity to win an amazing holiday. Valued up to $9,460, the holiday will take them jet setting to Greece, a stay in Athens and Santorini and a stop over in Dubai on the way home.
Make sure you enter below and share the love (and holiday opportunity) with everyone you know this Christmas.
We wish you, your family and friends, a safe and relaxing holiday season and look forward to helping you at any time with your ongoing and future finance needs.
Season’s greetings to all...