Lending for Residential Property Investment

July 8, 2015

 As a result of recent concerns over the heated metropolitan property markets of Sydney & Melbourne, raised by the Government’s ‘Australian Prudential Regulation Authority’ (APRA), many lending institutions have tightened their maximum loan to security ratios on property purchases that are primarily for investment purposes. In some cases these ratios have dropped as low as 80% of the relevant purchase price. Others are sitting at a maximum of 90%, & a few at the time of writing this article, are still sitting at 95% plus capitalised mortgage insurance.In addition to the change in lending ratios, lenders are also once again separating the cost of pricing on these loans, pricing them higher, compared to loans for owner occupied housing. A similar position existed to this in the housing loan market back in the 1970’s & 1980’s, but driven by different reasons. A property ‘’bubble’’ in these two capital cities (particularly Sydney) is of natural concern in an environment where:-Prices are driven by ‘speculation’ that property values will continue to increase (example being increased & ongoing demand from foreign investors)Property values do not reflect a reasonable ‘yield’ / ‘return’ to the investorThere is a plateauing of median rents in Sydney & NSW. (refer attached report from the NSW Gov’t ‘housing’ website as at 31/3/15....report.) At some point property ‘’bubbles’’ do have to burst, so if you are thinking of property investment at present, make sure your research into such things as aspect, socio demographics, current yields, surrounding infrastructure growth etc; is well founded.Michael is always available for discussion on the above & any other lending matters. Just ring him on (02) 65832211.property markets of Sydney & Melbourne, raised by the Government’s ‘Australian Prudential Regulation Authority’ (APRA), many lending institutions have tightened their maximum loan to security ratios on property purchases that are primarily for investment purposes. In some cases these ratios have dropped as low as 80% of the relevant purchase price. Others are sitting at a maximum of 90%, & a few at the time of writing this article, are still sitting at 95% plus capitalised mortgage insurance.

In addition to the change in lending ratios, lenders are also once again separating the cost of pricing on these loans, pricing them higher, compared to loans for owner occupied housing. A similar position existed to this in the housing loan market back in the 1970’s & 1980’s, but driven by different reasons. A property ‘’bubble’’ in these two capital cities (particularly Sydney) is of natural concern in an environment where:-

  • Prices are driven by ‘speculation’ that property values will continue to increase (example being increased & ongoing demand from foreign investors)

  • Property values do not reflect a reasonable ‘yield’ / ‘return’ to the investor

  • There is a plateauing of median rents in Sydney & NSW. (refer attached report from the NSW Gov’t ‘housing’ website as at 31/3/15....report.)  

At some point property ‘’bubbles’’ do have to burst, so if you are thinking of property investment at present, make sure your research into such things as aspect, socio demographics, current yields, surrounding infrastructure growth etc; is well founded.

Michael is always available for discussion on the above & any other lending matters. Just ring him on (02) 65832211.

 

 

 

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