What the? Finance tightened up on cheaper housing options?

G'day,
I was talking to a local real estate agent and he told me some interesting news. Apparently the banks are restricting loans to housing that is at the cheaper end of the spectrum. A property that was on the market for $125K was knocked back for finance and is now back up for sale, apparently 1 of 4 that have seen this kind of treatment from the bank on Monday. In a regional town. Ouch! Anyway, I was wondering if anyone else has experienced this? What on earth is going on? Is it related to the Royal Commission?
Whats the story??

 

Probably nothing to do with the house, the location or the price point. Finance has tightened significantly and peoples borrowing capacity across the board has reduced significantly.

The Royal Commission is only the latest influence on this trend, which has been ongoing for almost 3 years now. It's probably the single most discussed topic on this forum since 2015. Nice to see that some real estate agents are finally catching up.

 

I think when they have 4 properties land back on their books after finance falls through for 4 different buyers... well it would make you question what is going on.

 

First I've heard.

I agree with Pete - finance is harder to obtain for investors with multiple IPs. I don't know how that translates to the particular area you've mentioned though.

Cheers

Jamie

 

The actual price point would have nothing to do with it - financed huge amounts of cheapy properties and the lenders aren't targeting that.

It would likely be IF property related more to do with a potential postcode restriction, property is substandard (damaged etc), or if personal related then due to the plethora of lending changes which have progressively rolled through since 2015.

 

Last year I was trying to refinance with State Custodians but they told me they wouldn't do loans for the postcode the property was in.

 

If it's regionals then the banks often have policies that require greater deposits (lower LVR) to manage their risk and if buyers aren't aware of that and apply for finance then it will fail as they don't have enough deposit.
For many regionals you can expect to need 20% deposit
It's all about risk management. Regional towns can be more volatile with growth and banks are in the business of making money not risking it so they reduce their lending in those areas

 

Yes they were regional Westminster. But honestly, a home that is $125K and renting with a good renter in place for $160 a week. Repayments are meet. So I really don't see that much risk. Even if everything went south, and it was vacant your outlay would only be a $146 a week if your borrowing the whole amount. Vacancy rates in this town are 1.68%. I really can't see how there is much risk involved at all. If you had no tenancy in place at all, and you had no deposit at all... then maybe there is a risk. There is room for a rental increase, and at $125,000 on a 660sqm block I can't see it going anywhere else but up in terms of growth because well, at that price there is very little that can go down. I am struggling to work out why a loan on this type of property would be knocked back. Glad it wasn't me. But it does make me think - What the?

 

Banks don't really care about the cash flow - their risk is always based on how long it will take to sell the property in case of foreclosure. These types of areas can take significantly longer to sell/require price reductions to sell in a timely manner which flow onto losses to the bank.

 

That is interesting Corey. I always thought that a loan was granted on serviceability grounds, if rent is coming in & covering the rent then I would have expected that the loan was fairly solid. Interesting.

 

Borrowing capacity is granted on total cash flow position - deposit amounts are based on risk mitigation for the lender in case of foreclosure.

 

The loan I was looking to refinance to State Custodians was regional, <70% LVR and without looking into my financials they said their rules had changed, the regional town didn't have enough sales in the previous 6mths (in the 300K price range in this case) so it didn't fit their criteria (for risk obviously). It seemed purely based on the postcode and the sales data they had for the postcode and their tightened criteria.