If you’ve been thinking about buying an investment property, you may want to know how to secure that all-important loan.
When the Reserve Bank tweaked its loan-to-value restrictions to impose higher equity requirements on investors – initially forcing them to have 40 per cent of the value of a new purchase – there was a lot of noise about how it had put the brakes on the investment market.
But the good news is that it’s definitely still possible to borrow to buy an investment property, and it might be easier than you think.
Here’s what you need to know.
How much can you borrow?
Banks are still a bit tougher on investment lending in general, but as with anything, a good deal will always get a lender’s attention. If you have good account conduct and solid incomes, your chance of being successful is considerably higher.
Generally, banks want to see a minimum 30 per cent deposit for people buying an investment property. This can either come from savings or from the equity in your existing property.
If you live in a place where prices have risen a lot recently, you may find that a new valuation of your existing property puts you comfortably over the equity threshold.
If you’re struggling to get to 30 per cent, it doesn’t mean you have to give up. There are non-bank lenders available who have an appetite for investor lending. This can be a good option for some investors who need a stepping stone.
As well as the equity you’re offering, lenders will look at your personal income and will take into account about three-quarters of the rental income a property is expected to generate to determine how much you can borrow.
Negotiate your rate
Banks sometimes advertise specials for owner-occupied properties but that doesn’t mean you can’t get a great rate on an investment property. Mortgage advisers spend all day every day chatting to lenders so we know who has the appetite and ability to offer a good deal.
Get a pre-approval
Sometimes the key to success with property investment is being in the right place, at the right time, with the right offer.
If you have a pre-approval in hand, it will give you confidence about making a strong offer when you spot a great opportunity
What structure do you need?
Most investors structure their loans so that the bulk of their borrowing is against their investment property, not their own homes.
The Government recently introduced ringfencing of losses from residential rental properties, which means that they cannot be used to reduce the tax owing on other income.
There’s still good reason to weight your borrowing towards the investment, though, as usually the losses can be offset. Talk to your accountant to find the right course of action for your circumstances.
Some investors opt for interest-only borrowing on their investment properties, allowing them to focus all their principal-paying efforts on their owner-occupied home. We can help you work out whether that’s a good option for you.
Investment deals are sometimes a bit more complicated than transactions of owner-occupied properties. If you’re a new investor, it’s helpful to have a couple of trusted advisers on your team, such as a lawyer and a mortgage adviser. Get in touch today to talk about what you’re planning and how we can help you get there. Our experience in the industry means we can offer guidance on a wide range of scenarios.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.