Impact of move to 80% LVRs for investors

Hi all,

What do we think some of the impacts of tightening lending environment might be?

Will we see a slowdown in certain areas and price brackets? Will it affect certain types of properties more than others?

 

Those that have the cash and servicing will continue to buy. Those that dont will have to sit by the sidelines.

In saying that, you can still manufacture equity in this market via renovation and subdivision.

 

Hhhmm I think a bit of both. Dave you are right, but I'd also add that those who are now priced out of Sydney/Melbourne (because their 10% deposit savings won't cut it in these cities at a 20% minimum ruling, now), will take that same deposit and play in markets where the same amount can make up a 20% deposit (I.e. more affordable markets with good fundamentals).

On another note, I reckon the LMI companies (E.g. Genworth etc.) must be sweating buckets. Much of that easy money there were getting from the countless sub-20%-deposit loans will likely dry up for them now, as investors simply can't just buy or capitalise that LMI for their previously sub-20% deposit loans. A win for investors, IMHO!

 

Smart investors will just play with the market and move to the smaller banks..still doing 90%- 95% for IP...

Market def slowing down...BUT not going backwards....just slower pace.

 

Less investor activity, less development activity due to less buyers, prices slowing, less rental properties to meet the demand, higher rents.

 

I don't think it'll have much effect on investors. The vast majority have one ip funded at less than 80% by the equity in their ppor.

 

http://www.smh.com.au/business/bank...vestor-mortgages-at-80pc-20150707-gi6zj7.html

 

+1 for that above

 

FHB investors (the new breed) - now need 20% + costs. Say $350k just to break into the unit market. Now need at least $70k cash.. Forget about it. They will probably elect to buy PPOR instead.

In a slow growth area, new investors need a lot more capital growth to buy further properties. Say they bought their PPOR 5 years ago for $500k with $450k loan. Paid off $50k. Property now worth $608k (@4% growth p/a in slow area, e.g. brisbane). $400k loan remaining. Now have $86k to invest. Can only now buy up to $400k property at max 80% LVR. Previously this would buy circa $600k @ 90%

 

Is it possible to take out a loan with 90% LVR and saying to the bank that the loan is for PPOR but than using it as an investment property after you’ve had the loan approved, contract settled etc. and saying ‘your circumstances changed’. Does that have tax implications or is there a possibility that the bank would just repossess the house for misleading them?

 

Are you talking about the very next day after settlement your circumstances changed?

If it was genuine that things changed they cant really do much about it but if you intentionally mislead and deceived them then there probably wouldn't be happy.

 

For the moment, they can still get up to 90% pretty easily.

 

I mean just not telling the bank at all.

Are there any legal or taxation ramifications that would arise from that?

 

They might ask for a stat dec form before signing up that you will use it as a PPOR and they might have similar conditions as the FHOG did.

 

80% lend on IPLs is favoured towards more established investors IMO - more equity you have more you can cross against the new property

Be careful re taking out a PPOR loan and then using the property secured as an IP - in the T&C's of the loan contract there may be a clause stating that the bank can either repossess the property or force you to pay back the loan within an immediate timeframe (you probably will need to sell unless you win the lotto!)

In saying this though its not feasible to enforce this for every single property - have seen cases where customers have either demolished the property entirely so the loan is secured against vacant land (negative equity) and other cases where they have demolished the residential property and built a commercial property on the land......

its a jungle out there....

 

Legally the loan docs say you need to inform the lender of any change to your circumstances. The lender is unlikely to repossess. Perhaps the lender might increase your rate if they had different pricing for investors.

The reverse, deciding to live in an investment property, was a fairly common scenario for a number of fhbs and some thought that it affected apras figures on reported investment lending.

 

Practically, the lender probably doesn't care as theyre not likely to find out and being ignorant to it they can still count you as a ppor loan for apra.

 

What he/she said

 

I don't think an 80% max LVR is any sort of disincentive to investors. In fact, I've never borrowed on an LVR greater than 80% myself anyway. And, as investors, they've likely got equity elsewhere they can extract via LOC for the 20% then borrow the balance. So, effectively an 100% loan scenario despite nominally 80% LVR secured by the new purchase.

That is what I'm considering doing next. My new PPOR in Brisbane just valued circa $1M (or a bit more). We have loans on it of $300K. I was going to go to my personal banker at WBC and top that up to 80% LVR and get another $500K as LOC secured by my PPOR.

As 20% deposits, $500K allows me to purchase another $2.5M in total properties at 80% LVR!

Of course, this is only the LVR hurdle which is all this thread is about. Servicability is a different matter. I think if the banks want to curb lending they should lift the servicability hurdle, not the LVR hurdle. Force all loans to be assessed at an 8% interest rate and see how they stack up...

Cheers,
Michael