The living expense calculation that could see you lose your investment deposit and inhibit you borrowing more money

More than 1.5million Australians have borrowed money to invest in property, and one of the greatest concerns emerging for investment borrowers, and the brokers submitting deals on their behalf, is the changing assessments of investment borrowing. Thanks to the living expense calculation now carried out by more and more lenders, many would-be-borrowers are failing to qualify to borrow more money. With the changes to calculations so fresh, many less experienced brokers are making mistakes on serviceability calculators, (you are no better off going direct to a bank, as their calculator could be the worst one out there, at least a broker provides more options, but you have to choose wisely). With a tightening of lending policy, the concern is there could be thousands of Australians exposed to “off the plan” property purchases, who could be unable to get secure finance in 6 months, a year or two years. If that’s the case they will most likely lose their deposits.

According to APRA there are 3.967 million loans with redraw, 1.841 million with offset, 1.617 million interest only loans. Many of the interest only loans are investment. Some of the loans with redraw are investment, so there are well over 1.5 million people. Even 5 years ago, according to RP Data there were 1.76 million people who owned an investment property, with 2 out of 3 declaring a loss. With the new census looming it will indeed be interesting to see the increase, given such low rates.

The problem is the future cost of debt. Two things people often don’t factor in

  1. Affordability if rates rise
  2. Affordability and affect on household income when loan revert to Principle and Interest payments

People often have blinkered vision when investing and don’t thoroughly consider the future consequences of the cost of property, particularly perhaps at a time when kids are older and wanting to go to private school. Consider NOT buying “off the plan”.

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