For many years experienced property investors have used finance to take advantage of opportunities and build their wealth.
However, over recent years for a host of reasons, property investors have found accessing finance increasingly difficult:
- Far more information is required
- Applications are assessed in granular detail
- It can take far longer for an application to be approved than was historically the case
- Debt serviceability requirements have changed
More Property Investors – Greater Caution
Compounding the issue is the fact that in a low interest rate environment, more people are becoming involved in property investment seeking capital growth, steady returns and the potential tax benefits on offer.
The downside is there are now more, inexperienced property investors in the market and contributing to accelerating prices.
The increasing number of new entrants into the market has seen more stringent conditions and assessments being applied by Lenders.
While this is prudent to protect the inexperienced players from financial disaster, many experienced property investors found they are being treated largely in the same manner.
Property Investors – Understand the Lending Landscape
There is no ‘magic bullet’, however there are actions experienced investors can take to avoid unnecessary frustrations and delays.
The starting point is to understand the lending landscape:
- The Lender appetite for different types of investments you may be considering
- What information they will require
- The timelines involved
- The likely terms and conditions attached to any approval
Debt Servicing – When and How Will They Be Repaid?
Historically, if debt servicing was tight, experienced property investors could leverage their track record to access the finance they required.
However, whilst experience in the sector still carries weight, the focus today is about being able to demonstrate you can repay borrowings from normal cashflow and not be reliant on asset sales.
Even if you are seeking interest only finance, you will need to demonstrate to Lenders that you can:
- Repay all your borrowings over normal commercial terms (30 years for most residential property and 20 years for commercial)
- Continue to service all your borrowings should interest rates rise by 2.50%
- Absorb a 20% reduction in rental income (allowing for any potential vacancies) and still service your borrowings
Whilst experienced property investors with a sound track-record, may enjoy some greater flexibility, the ability to repay will be the key issue that will need to be satisfied.
Know Where You Stand
In our experience, experienced property investors achieve better outcomes when they:
- Know where they stand in the market before approaching Lenders
- Recognise whilst the Lenders broad approach may be similar, they are not all the same
- Understand the requirements of Lenders and provide all the needed information, in the correct format, at the outset
- Address any issues that may detract from their proposal before making a formal submission for finance
- Anticipate questions or issues that may arise through the process and prepare in advance
- Prepare a quality & professional Finance Application
Summary
We are starting to see signs that some Lenders are taking a slightly more flexible approach when it comes to property investment.
Indeed, one of the majors (along with some other Lenders) recently reduced interest rates for this type of finance, which is a positive sign.
They will no doubt continue to carefully assess finance requests; however, this should favour experienced property investors.
The key to a successful outcome, as outlined above, is preparation and submitting a professional finance proposal.
If you are an experienced property investor and would like to learn more about how The 500 Group can help you access the finance you need, don’t hesitate to give me a call.
