Couldn’t get a loan for your first property? These recent changes will make your life as an investor much easier.

The Reserve Bank of Australia (RBA) has a much bigger impact on the property market than many people think. You might blame your lender for not giving you the loan you need, but it’s actually not their fault.

Wealth for Life minimum interest rates
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It’s the cash rate. Let me explain…

The cash rate is the interest rate banks have to pay for overnight loans. Banks borrow these loans from the RBA so they can turn around and lend the money to their customers. For the banks to make money, the interest rates they charge for mortgages have to be higher than the cash rate.

However, things are changing for the better. Here’s why investors are getting excited about the property market again.

The Big Changes

In 2014, the cash rate in Australia was 2.5%. At the time, the Australian property market was having some of its finest days. But things started to go downhill a couple of years later. This was when we saw the first signs of a downturn.

The market started dropping and investor activity slowed down significantly. Many existing investors took losses, and those on the sidelines couldn’t afford to get in.

Wealth for Life big changes
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It wasn’t until this year that the future started shaping up for the better. The RBA lowered the cash rate down to 1.5%, and then dropped it even further – to an all-time low of 1%. This alone meant that mortgage interest rates would drop in kind.

But this wasn’t the only change. Around the same time, the Australian Prudential Regulation Authority (APRA) eased the 7% serviceability buffer.

Before that change, lenders had to stress-test borrower serviceability against an interest rate of 7%. They wanted to make sure the borrower could repay the loan if the rate were that high.

At the time, the cash rate stood at 2.5%. This meant the stress-test serviceability was almost three times the cash rate, or approximately double the actual mortgage interest rates charged by banks.

Needless to say, this created a huge entry barrier for aspiring investors. Even if they could service the loan, the buffer was way too high.

But this isn’t the case anymore. Lenders can now set the minimum interest rates to their liking, and they won’t have to stress-test loans at such high buffers.

Pair this with the historically-low cash rate and you can see why it has never been easier for investors to build up their portfolio. Let’s go over some of the biggest benefits of these changes.

1. Better Loan Accessibility

This is the most obvious and most important benefit of all the recent changes. If you haven’t been able to get a loan in the last few years, there’s a good chance this won’t be the case anymore. The overall lending criteria has loosened up quite a bit, so more and more investors will be able to start their careers.

Wealth for Life loan changes
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Not only that, you should now be able to get more money than you could in a long time. Canstar’s Steve Mickenbecker says that Australians with an average income could get around $346,000 in the past. After the changes, they may be able to get up to $62,000 more.

This should be enough to kick-start investment activity. After all, it was these tight standards that negatively impacted not just the property market, but Australia’s economy as a whole.

As Realestate.com.au chief economist Nerida Conisbee explains:

“Property market conditions can change quickly and putting in too many brakes at once can lead to conditions turning too hard and too quickly. All this stimulus is being applied because the Australian economy isn’t doing all that great which will be a key factor in moderating this upturn.”

These changes will lower the once-high entry barriers, and the ripple effect will benefit the entire country.

2. More Favourable Loan Terms

Since the APRA has allowed lenders to choose their own rate, we can expect competition to spark. This flexibility will prompt lenders to undercut each other, which is always good news for borrowers.

Wealth for Life better terms
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Not only will it be easier to get a loan, you’ll be able to negotiate better loan features. You can expect lenders to compete with lower interest rates, lower fees, and better services. That will make it easier for you to start investing.

This is also great news if you already have a loan that’s doing a number on your cash flow. If you went with a fixed-rate loan a few years back, you’re likely overpaying for it at the moment. But now you should be able to find a much cheaper option that will leave more money in your pocket.

If you’re not experienced in renegotiating loan terms, hiring a skilled mortgage broker is your safest bet. They’ll help you understand exactly what you have to do to take full advantage of the changes.

3. The Market Is Picking Up

Considering everything discussed above, it’s safe to assume that we’re looking at the end of the downturn. It’s just a matter of time before the market reverses course and heads up again.

SQM Research’s Louis Christopher has the following to say:

“It is a real recovery. The reason why we’re seeing the pickup in clearance rates is that there are more buyers out there due to cuts in interest rates, the surprise Coalition win and the loosening of credit restrictions by APRA. All this is enough to boost the property market. It’s created a trigger for a turnaround.”

You know what this means – it’s the perfect time to buy low. As more investors enter the market, the competition will skyrocket and so will the prices. The exact timeframe is anybody’s guess, but you might want to get in sooner rather than later if you don’t want to miss out.

Proactive investors have already started jumping on this trend, as evidenced by the rise in auction clearance rates. You don’t want to be left standing on the sidelines, raring to go but balking at the rising prices.

The Stars Have Aligned

As you can see, conditions couldn’t be better for property investors than they are right now. The downturn has pushed prices down so much that some previously-inaccessible hotspots are now quite a bit more affordable.

Wealth for Life skyrocket
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

Better yet, it hasn’t been easier to invest in a long time. Interest rates are lower, the large buffers are gone, and you can find a good deal that won’t over-encumber your finances.

Of course, there’s still the matter of choosing the right investment property. While all the factors outside your control have fallen into line, it’s still up to you to make the most of it.

For further advice on how to do it, just reach out to us.

Couldn’t get a loan for your first property? These recent changes will make your life as an investor much easier.

The Reserve Bank of Australia (RBA) has a much bigger impact on the property market than many people think. You might blame your lender for not giving you the loan you need, but it’s actually not their fault.

Wealth for Life minimum interest rates
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

It’s the cash rate. Let me explain…

The cash rate is the interest rate banks have to pay for overnight loans. Banks borrow these loans from the RBA so they can turn around and lend the money to their customers. For the banks to make money, the interest rates they charge for mortgages have to be higher than the cash rate.

However, things are changing for the better. Here’s why investors are getting excited about the property market again.

The Big Changes

In 2014, the cash rate in Australia was 2.5%. At the time, the Australian property market was having some of its finest days. But things started to go downhill a couple of years later. This was when we saw the first signs of a downturn.

The market started dropping and investor activity slowed down significantly. Many existing investors took losses, and those on the sidelines couldn’t afford to get in.

Wealth for Life big changes
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

It wasn’t until this year that the future started shaping up for the better. The RBA lowered the cash rate down to 1.5%, and then dropped it even further – to an all-time low of 1%. This alone meant that mortgage interest rates would drop in kind.

But this wasn’t the only change. Around the same time, the Australian Prudential Regulation Authority (APRA) eased the 7% serviceability buffer.

Before that change, lenders had to stress-test borrower serviceability against an interest rate of 7%. They wanted to make sure the borrower could repay the loan if the rate were that high.

At the time, the cash rate stood at 2.5%. This meant the stress-test serviceability was almost three times the cash rate, or approximately double the actual mortgage interest rates charged by banks.

Needless to say, this created a huge entry barrier for aspiring investors. Even if they could service the loan, the buffer was way too high.

But this isn’t the case anymore. Lenders can now set the minimum interest rates to their liking, and they won’t have to stress-test loans at such high buffers.

Pair this with the historically-low cash rate and you can see why it has never been easier for investors to build up their portfolio. Let’s go over some of the biggest benefits of these changes.

1. Better Loan Accessibility

This is the most obvious and most important benefit of all the recent changes. If you haven’t been able to get a loan in the last few years, there’s a good chance this won’t be the case anymore. The overall lending criteria has loosened up quite a bit, so more and more investors will be able to start their careers.

Wealth for Life loan changes
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

Not only that, you should now be able to get more money than you could in a long time. Canstar’s Steve Mickenbecker says that Australians with an average income could get around $346,000 in the past. After the changes, they may be able to get up to $62,000 more.

This should be enough to kick-start investment activity. After all, it was these tight standards that negatively impacted not just the property market, but Australia’s economy as a whole.

As Realestate.com.au chief economist Nerida Conisbee explains:

“Property market conditions can change quickly and putting in too many brakes at once can lead to conditions turning too hard and too quickly. All this stimulus is being applied because the Australian economy isn’t doing all that great which will be a key factor in moderating this upturn.”

These changes will lower the once-high entry barriers, and the ripple effect will benefit the entire country.

2. More Favourable Loan Terms

Since the APRA has allowed lenders to choose their own rate, we can expect competition to spark. This flexibility will prompt lenders to undercut each other, which is always good news for borrowers.

Wealth for Life better terms
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

Not only will it be easier to get a loan, you’ll be able to negotiate better loan features. You can expect lenders to compete with lower interest rates, lower fees, and better services. That will make it easier for you to start investing.

This is also great news if you already have a loan that’s doing a number on your cash flow. If you went with a fixed-rate loan a few years back, you’re likely overpaying for it at the moment. But now you should be able to find a much cheaper option that will leave more money in your pocket.

If you’re not experienced in renegotiating loan terms, hiring a skilled mortgage broker is your safest bet. They’ll help you understand exactly what you have to do to take full advantage of the changes.

3. The Market Is Picking Up

Considering everything discussed above, it’s safe to assume that we’re looking at the end of the downturn. It’s just a matter of time before the market reverses course and heads up again.

SQM Research’s Louis Christopher has the following to say:

“It is a real recovery. The reason why we’re seeing the pickup in clearance rates is that there are more buyers out there due to cuts in interest rates, the surprise Coalition win and the loosening of credit restrictions by APRA. All this is enough to boost the property market. It’s created a trigger for a turnaround.”

You know what this means – it’s the perfect time to buy low. As more investors enter the market, the competition will skyrocket and so will the prices. The exact timeframe is anybody’s guess, but you might want to get in sooner rather than later if you don’t want to miss out.

Proactive investors have already started jumping on this trend, as evidenced by the rise in auction clearance rates. You don’t want to be left standing on the sidelines, raring to go but balking at the rising prices.

The Stars Have Aligned

As you can see, conditions couldn’t be better for property investors than they are right now. The downturn has pushed prices down so much that some previously-inaccessible hotspots are now quite a bit more affordable.

Wealth for Life skyrocket
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

Better yet, it hasn’t been easier to invest in a long time. Interest rates are lower, the large buffers are gone, and you can find a good deal that won’t over-encumber your finances.

Of course, there’s still the matter of choosing the right investment property. While all the factors outside your control have fallen into line, it’s still up to you to make the most of it.

For further advice on how to do it, just reach out to us.

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