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Breaking into the property market just got harder

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With banks now tightening their lending criteria for property purchases, it’s becoming harder and harder to break into the market or expand your property investment portfolio. The new criteria, which vary across different banks, are in response to government concerns about overheated property prices and new figures which show household debt to income has risen to more than 180%. The tough new lending rules include.

  • Limiting higher-risk, interest-only lending to 30% of all new residential mortgages.

  • Limiting the amount of loans to potential property purchasers in a building complex if that bank already loans to a certain percentage of existing occupants.

  • Applying further controls to interest-only loans with deposits less than 20%.

  • Using strict serviceability formulas regarding expenses and income to calculate if a borrower can afford the repayments on a loan. This is called the Net Income Surplus (NIS) and is usually calculated by aggregating all income (like rental income on a borrower’s properties) and subtracting living expenses, interest and principal payments on the new debt, and any other debt the loan applicant may have.

  • Encouraging banks to raise minimum home-loan deposits from 10% to 20%, and sometimes 30%, for property loans in suburbs which are deemed a risk.

The Big Four and postcode restrictions.

Many of the Big Four banks are expanding their postcode restrictions, i.e. postcodes within which lending is considered a greater risk. The result is a sharp rise in the required minimum deposit.

For example, this year ANZ lifted the number of restricted postcodes from 30 to 50. And the NAB recently published a ‘Postcode Blacklist’ containing 120 postcodes, representing approximately 600 Australian suburbs and towns.

The NAB’s list is divided into Group A postcodes in rural areas, where lending is capped at 70% of the property’s value, and Group B postcodes where lending is capped at 80%.

In Sydney, areas like Chippendale, Waterloo, Barangaroo and Homebush are on the Group B list, as are the CBDs in Melbourne, Adelaide and Brisbane.

Is there hope?

The answer is a resounding ‘yes’. Bongiorno has excellent relationships with major lenders and can help you navigate the changes.

Please call us on (02) 9326 2788 if you would like to discuss.

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