Why you can now borrow more, do more and achieve more…
And why you shouldn’t wait a moment longer.
Anyone working with us over the last couple of years would know that in Nov 2017 we made some big calls – that the lending market would start to loosen by mid-2018 (which it did) with real changes for lending in second half of 2019 (which we are now seeing) and overall improvement in the property market, especially in QLD and specifically on the Sunshine Coast by Q4 2019. What is now happening comes as a shock to some but has been on our minds for years and now, we’re doing some really daggy happy dances.
We have been banging on for ages about the arbitrary servicing rates that dictate how lenders can assess home loan applications. When you apply for a home loan you are assessed to make sure you can meet your repayments and instead of using current interest rates the lenders have to assess you on the rate of 7.25% giving (plenty of) wiggle room to ensure you can continue to make repayments if interest rates increase. Since its inception we felt that the 7.25% interest rate was too high, it was incorrectly set, and it should be removed.
Just in the last week the Australian Prudential Regulation Authority (APRA) issued a letter to lenders confirming its updated guidance on residential mortgage lending and no longer expects lenders to make their assessment using the 7.25 common industry practice. Rather, the revised interest rate buffer will be at least 2.5 per cent over the loan’s interest rate.
What does this mean for you?
The change in the ‘floor rate’ means an increase in borrowing capacity!
Once this change rolls out through the lenders (ANZ has announced their floor rate of 5.5% today), mortgages could be provided up to 14% larger than they were before.
We are so excited about this because, as mentioned we thought the rate was arbitrary, and also, we’ve had clients over the last few years who couldn’t quite get there on their next property purchase due to this one limitation alone. This change will make a huge difference.
Plus, interest rates are lower too … and they may even drop again before Christmas.
If you’re concerned the higher borrowing capacity on low-interest rates could spell trouble if they rates hike up, we’ve got a comforting piece of information on that.
The RBA who set base interest rates are driving an agenda of super low unemployment, in fact they’re hoping for full employment (not based on a % of employed or ‘technical’ full employment, actual full employment – anyone who wants a job has a job). They want more money flowing in the economy and for the government to invest in infrastructure and jobs.
Governor Lowe plans to usher in the lowest unemployment target in half a century. He believes the economy can sustain it. He said several times that he would prefer the government to help out with infrastructure projects and the like, but if it won’t, he is “prepared to adjust interest rates again if needed to get us closer to full employment.”
What this means to us investors…
interest rates expect to be low for a long time with a potential rate cut on the cards before Christmas!
We’re already seeing macro signs the overall property market is improving. Industry experts are talking of ‘green shoots’ in the Melbourne and Sydney markets signally a recovery, but it’s Queensland and especially SEQ that is poised to benefit the most with these changes combined with an impressive list of once-in-history circumstances making investing in the region a stand out across Australia.
The Sunshine Coast is already primed with massive population growth, increasing job ads and opportunities, a rapidly expanding economy and it is heading for the most significant undersupply of property in any top 20 city/region in Australia’s history.
Ray White Chairman Brian White was recently quoted saying there’s “potentially more risk from not acting in today’s market following RBA cut.”
We made the bold calls on this years ago. We don’t want to do the sleazy sales pitch here and tell you to buy, buy, buy. But be prepared, if you don’t act and everything happens as we predicted and you miss out, we will absolutely pull out our ‘I told you so’ dance moves.
Want to review what the changes mean for your capacity and how you can effectively build your property portfolio?