A recent ANZ-hosted breakfast in Melbourne tipped the downward journey of the official cash rate still had a way to go. With the cash rate currently at 0.75%, ANZ believed it might even hit the 0.25% level – that’s, effectively, negative territory.
Coinciding with their cash-rate prediction, the Australian Bureau of Statistics’ latest finance data showed the largest bump in loans to investors in close to two years. Month-on-month, loans for investors rose 5.7% in August, more than tripling the growth in the owner-occupier market (1.8%).
Investors are coming … IT’S LIKE IT’S 2015, ALL OVER AGAIN!
Majors make a play for investors
The gulf between principal plus interest and interest-only loans is closing.
Westpac – the nation’s biggest investor lender – raised its Loan-to-Value Ratio (LVR) for investments from 80% to 90%, recently. It’s applicable to new purchases, investors wanting to refinance or move to interest only payments. (The same has happened at their subsidiaries St George, Bank of Melbourne and BankSA).
Additionally, most banks took up the opportunity to lower their serviceability threshold for borrowers once APRA loosened the buffer, earlier this year.
What’s driving investors?
It seems an age ago when the real estate and associated industries were freaking out about the Federal election. Sports betting agencies were pretty much paying out on an ALP win. But investors were popping corks at the surprise result, which retained the Coalitions’ policies for negative gearing and Capital Gains Tax (CGT) concessions.
The August ABS data showed the first real response by investors to the May 18 poll.
Investors have been motivated by a perfect storm of factors:
- The retention of tax offsets
- Changes to policy and pricing of lenders (if you don’t have a 3 in front of your current rate, you need to talk to us)
- Green shoots in property prices in Melbourne and Sydney
Every residential property investor’s motivations are different.
But residential investors that come through the door Entourage Finance services are commonly motivated by the prospect of capital growth. Real estate has proven itself as a strong, long-term growth option. It’s subsequently become a central plank in the wealth creation strategies of Australians.
If investors can combine capital growth with yield, then they’ve hit the double whammy.
When investors are thinking about where to park their money, bricks and mortar has strong credentials. It’s not as exposed asm say, the share market, which is in a constant state of worry about US-China trade tantrums.
Learn from investment mistakes
One of the things that came out of the 2015 boom was how blindly investors walked into products. They got caught up in the rush: too focused on being the last person standing at an auction, they just wanted to get the cheapest finance product they could. Unfortunately, many of these products didn’t suit their work or lifestyles and ended up a cause of frustration at tax time.
Speaking to other brokers at the recent Australian Mortgage Awards, they’ve also seen a lot of customers come to them in the last year with loans that were poorly structured by other parties.
Some of the common problems that come across our desk are:
- Tax deductibility of debt – people think it’s what it’s secured against which makes it tax deductible, not what the loan is used for
- The person on title – whether it’s a spouse, company or trust, it’s important to get it right first time as hard. It’s difficult to change down the track, with potential stamp duty implications
There were a lot of people working in the finance industry during the last boom that weren’t delivering customers the best outcomes. With the demand at the time, they were adopting a pick and flick approach.
But when the market slowed, their value proposition was found wanting. As a result, many left the industry. (For the record, the jury is still out on whether the current market is boom-bound).
It’s so important to ask for help. A brokerage which is committed to delivering customers a holistic finance experience will help investors find a product that is not only competitive, but also support their own growth strategies.