WHAT TO DO WHEN THE BANKS SAY NO MORE?
Do you ever feel like sticking it to your bank? Giving them a good measure of ‘what goes around, comes around’? If only you could!
Like it or not, the banks are a necessary part of the property investment game. They are not afraid to change the rules either. Who ever said it was a fair game?
At the moment, the banks are trying to take control of the next few rounds. Here are some tips to help see you through to the other side.
ACCESSING MORE FINANCE
At the moment, the bank’s favourite tool to handicap investors, is limit the amount of finance that they can access.
The Australian Prudential Lending Authority has put a speed limit on banks. This means they have to keep their investment loan growth below 10% per year. The banking sector has responded by putting up higher barriers for investor loan approvals.
The investors most affected are those with high loan to value ratios or tight cash flow. However, even investors with apparent good serviceability have been affected.
To get around this some are choosing to flip a property development for a profit. This can inject cash flow and pay down debt in order to unlock more finance. Others are choosing to sell off appropriate properties, to enable the purchase of better ones for the current environment. Some are converting their properties into dual occupancies to get extra cash flow.
Before you make any big decisions you should speak with your finance strategist. There may be ways to improve your serviceability or broker a more favourable loan.
Another tool the banks use to slow loan growth, is to discourage in the withdrawal of equity.
Banks have rarely ever valued properties in the same way as the market, but the gap between bank valuations and market value is growing. Even if your property has grown in value, the bank will probably discount this in their valuation.
What’s more, many banks require longer periods between valuations than was the case in the past. If you buy a property, you may need to wait 6 months before you can even order a valuation.
Many investors have decided to give their property’s value a boost through renovation. A cosmetic renovation can be cost effective and manufacture value for your property.
START MOVING AGAIN
If you are stuck with your investing, then the key to start moving again is to improve your appeal to the lenders.
Right now, the most appealing borrows have a good credit score, good serviceability, and loan to value ratios below 80%.
Cleaning up your credit file, improving your cash flow and consolidating any property and personal debts can help you win over more lenders.
Still, this might not be enough. You may need to change tack with your investing strategy. What worked yesterday, might not work today. If you think this is the case, then consult your property success team to update your strategy.
PATIENCE IS KEY
Just like property, finance also moves in cycles. When interest rates are low, finance is harder to get hold of. The best you can do is remain agile and adapt to changes.
Be glad that you already have your foot in the market, and that your wealth is growing. You will be in a great position to advantage of opportunities once lenders loosen the purse strings again. But, for the moment it doesn’t look like finance will ease anytime soon.