With the difficulty over the last 12 months in passing lenders’ affordability requirements many buy and hold property investors have been looking for answers so they can continue to buy and hold. This has especially applied to the larger investors where the combination of high test rates, the lowering of how much rent banks will take into consideration, the itemization of individual rates and insurances and then other negative effects such as the CCCFA have meant very few can qualify for funding.
I alone have had half a dozen new client discussions over the last month with clients with over $25m of property who are leveraged less than 30% and, in most cases, have had substantial non-property related income who still can’t meet affordability criteria.
You may have seen Resimac launch a ‘new’ specialist investment product I the last few weeks. This product (or a slight variant on it) has been available since the start of the year and is where I see the non-bank market moving more over the next 12-24 months.
It takes a concept which is used more in commercial banking circles and allows residential investors to use it by disregarding the remainder of a client’s position (so exclude the assets and liabilities elsewhere) but look at potentially approving it if the scaled rent on the properties provided to the lender cover the mortgage debt applied for when applied on that lenders test rate.
There are benefits in that a higher amount of rent is used than with other lenders, it is possible to get a 20 year interest only term and negatives in that the funding costs are higher than that of a main street bank and then it is still quite difficult to meet the affordability unless you are putting into the mix an existing property which has no debt as additional collateral or you have access to cash to improve how the numbers look.
Another non-bank lender is already doing something similar in some circumstances which creates further solutions.
Some of you may also have taken part in a survey around the start of the year (for either APIA or Property Apprentice) asking some property and funding related questions. These questions are designed to help a third funder enter the market at the correct time, which unfortunately has been delayed due to the current market conditions.