Talking about change – the investment lending space continues to evolve and adapt to the new norm of Australian Prudential Regulatory Authority (APRA) intervention. Oh, and by the way, APRA won’t be going away anytime soon. There have been the obvious shifts like increased interest rates, larger mandatory deposits and interest only caps. This is the stuff that makes the news but what about the nitty gritty likes lenders dumping equity release products? Higher credit assessment rates, shifts away from rent reliant portfolios, reduced Loan to Value Ratio (LVR) limits, new assessment ratios or even the increased scrutiny of living expenses.
The nitty gritty doesn’t tend to make the headlines but it certainly compounds the effects of rate rises and interest only caps. This is a challenging borrowing environment and one which is becoming the new norm (at least until the dust settles).
Why all the fuss? It’s been so good for so long the thought of the market shifting to ‘normal’ will bring out the doomsayers but this is where the opportunities lie. Property investment is a long-term game and it has just been through one cycle. To be successful in the game you’ll need to go through several cycles. Interest rate rises, interest only caps, LVR reductions bla bla bla it’s just noise! The focus should be on what you can control. The number one thing being:
You need to ask yourself the question – do I/we have the cashflow buffers in place to hold onto the property/ies? Therefore, you need to ensure your rates are sharp, particularly if you have a large portfolio a 0.5% increase in interest rates on $1m of debt is an extra $5,000 per year in repayments. Review and pay attention to your portfolio determining where the value is.
Are your investments achieving the best yield? Are there depreciation benefits that you’re not maximising? When are your fixed rate and interest only periods expiring?
These are the questions to ask yourself when reviewing your portfolio. You need to understand your ability to secure finance and hold on to property for the long-term. Otherwise, you may end up investing yourself into a corner.
Here are some simple things you can start looking at:
- Review your current position with an investment focused mortgage broker
- Establish a good cash buffer which may include refinancing for equity releases
- Look at your interest only and fixed rate expiries
- Is there deadwood in the portfolio to get rid of?
With less people in the marketplace there will be better buying opportunities. Didn’t Warren Buffet say, “be fearful when others are greedy and greedy when others are fearful.” So, to take a leaf out of the old boy’s book: Be investment ready as often as you can to strike while the iron is hot. Property is a long-term game and you want the benefit of being in the game for multiple cycles.
For more advanced investment lending strategies and a closer look at how you can bulletproof your portfolio I will be running an advanced investment lending webinar on the 10th August at 7pm – Work Smarter, Not Harder: The Secrets of Successful Property Loans. Give yourself a greater insight into what changes have taken place, efficient loan structures and cashflow strategies to make sure you stay on top of the game. You can register for this one-off event here.