The Impact of Tighter Lending Practices

By December 11, 2018Uncategorized

Yes, the auction clearance rates in Melbourne have slowed in recent weeks – and the social whirl of the Melbourne Cup Carnival and Spring Racing season in the lead-up to a hectic Christmas period never helps. But in between the reduced attendances at auctions (and the growing inclination to avoid offering soaring auction bids), there is something else happening in the local real estate market that is worth paying attention to. There has been a sudden spike in the numbers of investor-owned properties – both houses and apartments – that are currently hitting the real estate market. By understand the reasons behind that spike, incoming investors and current landlords should be informed and educated to help ensure they make smart decision regarding their own mortgages and home loan applications.

The Property Investment Landscape Is Changing

According to some real estate specialists across Victoria, an increasing number of existing property investors are choosing to sell their property assets – and it’s all to do with financial institutions tightening lending practices that have increased the cost of holding properties as investments.

The reason behind the trend is clear.

Typically, investors with a portfolio of properties, choose interest-only loans that are now coming to the end of their original loan terms. With lenders pushing them to switch loan products to take on principal & interest loans, the changeover can have a serious financial impact to people who have not been budgeting with the transition in mind, thanks to extra interest costs that can add hundreds of dollars to a household’s list of outgoing monthly expenses.

According to the Reserve Bank of Australia, interest-only loans with a combined total of about $360 billion will switch to principal & interest home loans during the next three years – a change that will put many borrowers in the unfortunate position of struggling with repayments that are more than they can afford to meet.

In some regions, across Victoria, local real estate professionals report investment properties hitting the market at the fastest rate in the past five years. It’s a flow-on effect from the increased difficulties some potential borrowers are having obtaining finance – and the fact that the tighter guidelines make loans more time-consuming to negotiate. The contributing factors are enough to send some investors elsewhere, as decisions to invest in other wealth-building strategies inspire more diversification.

Resist the Urge To Engage in Forced Selling

Sensible advice for anyone grappling with the issue in their own lives is to think carefully before making any huge decisions regarding selling and buying investment properties. Although existing investors who have been managing their property portfolios without the wriggle room typically recommended may be better off saying goodbye to their changed loan arrangements, your own personal circumstances should always be discussed with your accountant and mortgage broker, to help you have the right facts at your fingertips.

For more information about choosing the right mortgage to meet your needs, contact our team of mortgage broking specialists at Lending Specialists today.

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