One consequence of the current APRA crackdown on investment property loans is that some lenders have reduced the amount they will lend on investment properties to 80% of the property value. Is this an issue?
My short answer would be no, it doesn’t make much difference. The reason I say this is that most people buying investment properties already have equity in an existing property. This equity is often used when buying an investment property.
Typically the loan secured on the investment property is 80% of the value of the property as a standalone loan. The balance of the deposit (20%) and the purchase costs (5%) are raised as a separate loan secured on the purchasers other property.
This structure has three benefits;
- We avoid lenders mortgage insurance on the investment property by limiting the loan to 80%.
- We comply with current banking policy requirements
- We avoid cross collaterizing the purchasers existing property and investment property, in doing so provide flexibility for further use of available equity.
The only times that this current banking policy limits will be restrictive is if the investment property purchase is the buyers first property purchase and they are relying on cash for a deposit and don’t have a 20% deposit plus costs.
Or, they purposely want to limit the amount of cash/equity contributed to the investment property purchase.
There are exceptions to these 80% investment loan restrictions. Let me know if you need assistance.
Leave a Reply