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Why equity can help you buy again

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Why equity can help you buy again

Unlocking the equity in your home could help you purchase another. Chief executive of property advisory firm Property Mavens used her home’s equity to buy a Preston investment property. Picture: Lawrence Pinder

WE’VE all heard of the benefits of refinancing to get a better deal on your home loan, particularly a more competitive interest rate.

But what if refinancing could also help you buy an investment property?

“Borrowers may be able to refinance their existing home loan to access equity they may have built in their property, in order to buy an investment property,” Mortgage Choice chief executive Susan Mitchell said.

Refinancing with the aim of buying an investment property could allow borrowers to grow their wealth, according to Ms Mitchell, as, generally speaking, property was considered a safe asset class in Australia with decent returns over the long term.

“CoreLogic found that over the 10 years to June 2018, national dwelling values increased by over 40 per cent, a good return on investment,” she said.

But she cautioned there were a number of costs associated with refinancing, so it was important borrowers made an informed decision before jumping in.

Why equity can help you buy again
Leveraging your home’s equity could help you to buy another.

The nuts and bolts

So, how does refinancing using equity work?

The Successful Investor managing director Michael Sloan explained that lenders would typically lend you 80 per cent of the market value of your home, less the debt you still owed against it.

“This is your usable equity as banks hold some back as security,” he said.

“So, say, for example, you have a $500,000 property and a $200,000 loan. Your usable equity will be $200,000,” he said.

As to what value investment property you could buy, Mr Sloan said a simple rule of thumb was to multiply your usable equity by four.

“But remember that one of the risks of property investing is spending too much,” he said.

“You need to buy well below the median house price ($742,000 in Melbourne, according to CoreLogic), in fact you shouldn’t be within $200,000 of it.”

Ms Mitchell said the figure depended on how much a lender determined a borrower could afford to repay.

“Available equity is important but the key factor a lender needs to consider is how much a borrower can afford,” she said.

“If a borrower does not have additional capacity to repay a proposed new loan, they may not be able to borrow, irrespective of how much equity they may hold,” she said.

Why equity can help you buy again
Consulting an independent broker may be helpful for would-be investors.

Where do I sign?

And there’s the rub: having equity in your home is not a guarantee you’ll be able to access it.

“You can have a million dollars of equity but if you don’t satisfy the institution’s lending criteria, they are not going to loan you any money,” Mr Sloan said.

“The bottom line is they will take everything into consideration: for example, how many children you have, as the more you have the less you can borrow, your work situation and how much you spend on everything from your daily coffee to the tyres on your car.”

Lenders have also tightened their assessment procedures as a result of recent regulatory measures, such as The Australian Prudential Regulation Authority (APRA) imposing a 10 per cent benchmark in growth on investment lending last year.

This was introduced in a bid to curb activity in the housing market, Ms Mitchell said.

“These regulatory measures have resulted in lenders increasing their scrutiny of a borrower’s ability to service a loan,” she said.

“When deciding if an applicant can afford a mortgage, a lender will consider a borrower’s available ongoing income and from this allow for existing debt commitments and living expenses,” she said.

“Their decision will also factor in a buffer for potential increases in interest rates.”

But it’s not all doom and gloom. Ms Mitchell advised that borrowers could overcome the increased scrutiny by getting “financially fit”.

“Get out of debt, spend your money wisely and adopt a disciplined savings strategy to show lenders you can service a loan,” she said.

Air Mutual director Damien Lawler advised would-be investors to consult an independent broker who could access a range of lenders, which might have varying assessment procedures.

“Everyone is talking about the banks tightening up – which they are – but there are banks, particularly the smaller, tier-two banks, who are still lending,” he said.

Why equity can help you buy again
Getting the right structure for your loan is essential.

And finally …

Mr Sloan said his No.1 piece of advice for would-be property investors was to play it safe and to have some funds in reserve if things go wrong.

“You should never buy (another) property if you have no extra money available to you after you settle, so you need to have a buffer. And protect what you are building with income protection and life insurance, if you have a partner,” he said.

Source: www.sunshinecoastdaily.com.au

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Finance

The property party is over as our biggest bank curbs lending

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The property party is over as our biggest bank curbs lending

Australia’s housing-market extravaganza is over. That’s the call the nation’s biggest mortgage-lender is making when it comes to its own money.

In the past year, the Commonwealth Bank has reduced its exposure to apartment developers by more than $1 billion, or 23 per cent, according to data included in its first-half earnings report, released on Wednesday.

When the nation's biggest lender starts reining back it's a good sign the party is over.

When the nation’s biggest lender starts reining back it’s a good sign the party is over.

What’s more, the bank included a chart in its results highlighting its overall home-loan portfolio is growing notably slower than its competitors.

It’s also pulling back on loans to property investors, which rose just 0.5 per cent compared to 7.5 per cent growth for owner-occupier loans.

Sydney house prices, which surged 75 per cent between February 2012 and July, have now dropped 3.1 per cent from their peak, data released last week showed. But Sydney prices are still up 70 per cent on their cyclical low hit in February 2012.

Melbourne fared somewhat better, thanks in part to rapid population growth, with prices easing 0.2 per cent in January to be 8.0 per cent higher for the year.

CBA records $4.7b half-year profit, but Austrac fine and compliance costs weigh

CBA records $4.7b half-year profit, but Austrac fine and compliance costs weigh

Housing loans have been the driver of Australian banks’ recent run of bumper profits. So when the nation’s biggest lender starts reining back it’s a good sign the party is over.

Originally Published: www.brisbanetimes.com.au

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Finance

New postcode restrictions for home loans

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New postcode restrictions for home loans

In a notice issued to mortgage brokers today the CBA announced it will roll out a range of changes including restrictions on lending in some postcodes.

This includes forcing customers to stump up fatter deposits in order to get a home loan.

It will impact all types of properties including homes and apartments and also borrowers regardless of whether they are owner occupiers or investors.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

In the notice it said from Monday, December 4 the key changes will include:

– Reducing the maximum loan-to-value ratio from 80 to 70 per cent for customers without Lenders Mortgage Insurance (an insurance the customer pays and protects the lender not the borrower.) This means borrowers with a deposit less than 30 per cent must pay expensive LMI costs.

– Reducing the amount of rental income and negative gearing eligible for servicing which will impact investors.

– Change eligibility for Lenders Mortgage Insurance waivers and LMI offers for customers in some postcodes.

Home loan lending with the nation’s largest bank is about to get harder.

Home loan lending with the nation’s largest bank is about to get harder.

CBA said the new Postcode Lookup tool which will start from Monday will allow the bank and brokers to determine whether a borrower can successfully borrow in a particularly region or postcode and it will reduce customers wasting time applying where they are likely to get knocked back on a loan.

CBA has not released the postcodes and regions these changes will impact.

The move is a result of the responsible lending restrictions put on lenders by regulators to cool the red-hot lending market.

Home Loan Experts’ managing director Otto Dargan said these changes are significant and will impact many borrowers.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

“Lenders keep an eye on the economy and their exposure to different property markets and adjust their lending policies to manage their risks,” he said.

“We strongly recommend that home buyers don’t commit to buy a property until they have an unconditional approval from a bank.

“You could win an auction and then find out that your pre-approval is worthless, and then what are you going to do?”

Unconditional approval is when your loan application has been fully approved and is not subject to any terms or conditions.

Originally Published: www.ipswichadvertiser.com.au

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Finance

New postcode restrictions for home loans

Published

on

brisbane

brisbane

THE nation’s largest lender is tightening its belt and making it even tougher for potential borrowers to successfully get a loan.

In a notice issued to mortgage brokers today, the CBA announced it will roll out a range of changes including restrictions on lending in some postcodes.

This includes forcing customers to stump up fatter deposits in order to get a home loan.

It will impact all types of properties including homes and apartments and also borrowers regardless of whether they are owner occupiers or investors.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

Commbank is rolling out a range of changing which will make it tougher for customers to successfully get a loan.

In the notice it said on Monday, December 4 the key changes will include:

– Reducing the maximum loan-to-value ratio from 80 to 70 percent for customers without Lenders Mortgage Insurance (an insurance the customer pays and protects the lender, not the borrower.) This means borrowers with a deposit less than 30 percent must pay expensive LMI costs.

– Reducing the amount of rental income and negative gearing eligible for servicing which will impact investors.

– Change eligibility for Lenders Mortgage Insurance waivers and LMI offers for customers in some postcodes.

Home loan lending with the nation’s largest bank is about to get harder.

Home loan lending with the nation’s largest bank is about to get harder.

CBA said the new Postcode Lookup tool which will start from Monday will allow the bank and brokers to determine whether a borrower can successfully borrow in a particular region or postcode and it will reduce customers wasting time applying where they are likely to get knocked back on a loan.

CBA has not released the postcodes and regions these changes will impact.

The move is a result of the responsible lending restrictions put on lenders by regulators to cool the red-hot lending market.

Home Loan Experts’ managing director Otto Dargan said these changes are significant and will impact many borrowers.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

Home Loan Experts managing director Otto Dargan encourages borrowers to get unconditional approval before buying a property.

“Lenders keep an eye on the economy and their exposure to different property markets and adjust their lending policies to manage their risks,” he said.

“We strongly recommend that home buyers don’t commit to buying a property until they have an unconditional approval from a bank.

“You could win an auction and then find out that your pre-approval is worthless, and then what are you going to do?”

Unconditional approval is when your loan application has been fully approved and is not subject to any terms or conditions.

Originally Published: www.ipswichadvertiser.com.au

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