Traditionally, a finance application has been the tool used to determine if an individual is able to activate their prosperity through property. Qualifying for a mortgage, meant you had been granted the right to invest in opportunities across multiple markets.
However, economic changes, funding restrictions and shifting sands within the property investment landscape have made it harder for all investors to finance the growth of their portfolio – even those who have already established a significant portfolio.
The impact of APRA and the Royal commission into the banking industry has significantly altered the lending environment.
There has been a significant shift in ‘servicing calculators’ and evidence of lenders taking a deep and personal look at your actual living expenses has begun to hit the mainstream media.
What are they looking for? They are looking for lifestyle spending, where do you buy your groceries, whether you’ve got a gym membership, if you’ve got Netflix, if you use day care, if you use UBER etc. Essentially, they will be looking at all lifestyle expenses that show up on your bank statements, the expenses that contribute to your outgoing expenses and accordingly affect your disposable income.. It all goes to ‘living expenses’ on an application and allows the bank to determine your true weekly expense base. They want to understand how much you have left each and every week. It’s all about genuine serviceability.
While first-time investors are bearing the brunt of the more conservative lending environment, here are three tips that could fast-track your entry to the property market:
Don’t let your desire for independence from those pesky parents ruin your hopes of getting into the market. As investment lending becomes harder, family equity becomes more important than ever.
Simply, this is when a family member assists an aspiring investor in their first purchase by acting as a guarantor and establishing a second mortgage behind their current loan or using the equity on their existing property as a guarantee.
If mom and dad have some equity and are willing to put it up for you, well that’s a great way to start. Your mom and dad provide the equity and you can borrow 100 per cent, then all you do is put whatever savings you have in your offset account.
While there are different types of guarantees for first-time buyers, usually covering the entire amount of the loan, we would strongly advise sticking to a ‘limited guarantee’ in order to minimise the risk for the guarantor as they may be liable for your home loan should you default.
Credit card limits
There are in excess of 21 million credit card facilities in Australia. Existing credit is one way of altering the application in your favour. We encourage you to either lower the credit limits or get rid of the credit cards entirely. Remember it’s not about what you owe on the card it’s about the limit attached to the card.
A credit card with a 20,000 limit, where you only owe $2000 will always be viewed as $20,000 of debt. Drop the limit, by contacting the bank and your application will benefit.
Finally, whilst capital growth should always be a must have, first-time investors would do well to seek properties with high yield first in order to maintain good cash flow and serviceability.
“It doesn’t have to be a capital city-play. Might be a little bit more regional play. Noosain QLD or Geelong in Vic for example, have a good yield percentage according to our property expert Steve Purcell from Launch Properties
As investors go along their wealth-creation journey, they can start to chase balanced return properties to bolster their portfolio.
Whilst not wanting to get into the smashed avocado debate, the current environment requires disciplined behaviours from investors. Old-fashioned saving behaviours and financial discipline can build up an investor’s appeal to banks and lenders.
High incomes are no longer a ticket to a lender’s approval.
There is now a new lending environment where you cannot simply present your income and your expenses like payslips, you need to make sure that you can demonstrate that your lifestyle is one that can afford the lending.
To speak with a broker at Launch Money about a loan for your home, investment property or vehicle call our team on (02) 9009 2457.
Alternatively, you can reach us through our contact form.
About the Author:
May holds a Bachelor of Mathematics/Finance, is multi lingual and holds accreditation with the FBAA. May has demonstrated her commitment to client satisfaction in an outstanding career in finance and lending spanning 8 years. Rising through the ranks within a top tier lending institution, customer satisfaction became the cornerstone of her successful career as a lending consultant. Today, May heads up Launch Money, bringing her customer service skills to the business and ensuring our clients receive the best possible result for their lending needs. May’s key priority in all her dealings is to ensure our clients are well positioned to make educated decisions and activate their prosperity through tailored finance solutions.
May Chong can be contacted on (02) 9009 2457 or by email on firstname.lastname@example.org
Disclaimer: The information, analysis, provocations, suggestions and opinions contained within this email are provided by Launch Money Pty Ltd (ACN: 163 989 562). You should consider whether the information or advice contained in this article is appropriate to you having regard to these factors before acting on it. You should seek personalised advice from your financial adviser and your accountant before making any financial decision in relation to matters discussed in this article.