649 end of year property & mortgage recap (fixed vs variable, re-fi tips, PPOR to PPOR & IP + more)
Dec 4, 2023
auto_awesome
Mortgage expert, Rachelle Kroon, and property expert, John Pidgeon, discuss fixing your mortgage, 35-year loan terms, buying an investment property, bad credit ratings, lending for singles vs couples, refinancing, withdrawing money from FHSS, and more!
Consulting a knowledgeable mortgage broker can help explore alternative options for borrowing capacity.
Higher interest rates on investment lending are due to perceived risk and stricter lending policies.
Banks view investment properties as riskier, leading to higher standards and potentially higher interest rates.
Deep dives
Seeking creative options when traditional servicing is tapped out
When traditional servicing is tapped out and the big banks are unable to lend more, it would be advised to consult with a knowledgeable mortgage broker. They can explore options with smaller lenders who may have different policies that can stretch borrowing capacity. Some banks may have higher rental income requirements, more favorable policies for negative gearing, or different criteria for assessing multiple investment properties. Consulting with a broker who specializes in investment lending can help navigate these alternative options.
Higher interest rates for investment lending
There are two key reasons for higher interest rates on investment lending. Firstly, banks often price investment lending higher to account for perceived risk compared to owner-occupied lending. This is due to the potential volatility in the investment property market. Secondly, after the Royal Commission, banks have implemented stricter lending policies, including higher rates for investment lending, to comply with responsible lending guidelines and control the balance between home and investment lending portfolios.
Why banks see investment properties as riskier than principal residences
Banks view investment properties as riskier due to their assessment of historical data and market trends. Investment properties carry higher risks because they are not owner-occupied and may be subject to factors that impact returns, such as rental income variability, property market fluctuations, or tenant turnover. The risk profile for investment properties differs from owner-occupied properties, leading banks to apply higher standards and potentially charge higher interest rates to mitigate their perceived risk exposure.
The importance of not letting investment properties go into a rears
During tough times, people are more likely to let their investment properties go into a rears compared to their primary homes. This is due to a psychological tendency to prioritize protecting their own homes. However, this means that investment properties carry higher risk because they can accumulate more rears, which impacts the borrower's financial situation.
Banks lending more to couples than singles
Banks view a couple's joint income differently than the individual income of two single people, even when the incomes are the same. When applying for a mortgage, a couple's living expenses are perceived as being lower compared to two singles. In addition, the tax rates for a couple with the same combined income can be more favorable than for a single person with a higher income. Therefore, banks are generally more willing to lend more to couples due to their joint expenses and potentially lower tax liabilities.
In today's chat Glen is joined by Rachelle Kroon from Sphere Home Loans and John Pidgeon for an update on what's happening in the property and mortgages space along with your answering a bunch of your questions. They touch on:
👉🏽 should you fix your mortgage?
👉🏼 35 year loan terms - are they a good idea?
👉🏾 the steps for buying an investment property after owning your PPOR
👉🏿 bad credit ratings and what to do if you get knocked back from traditional lenders
👉🏻 how banks view lending for singles vs couples
👉 refinancing
👉🏼 when's the right time to withdraw money from your FHSS (first home super saver)
Thanks to Sphere Home Loans for supporting the Tuesday show! Need a mortgage broker? Connect with the team here
We hate email spam so we don’t create it! Sign up to our newsletter to get only the valuable money, careers and property info you need.
To get help, and to check out our online courses, resources and downloads (+ our disclaimers and warnings), click here.
Any advice is general financial advice only which does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you do choose to buy a financial product read the product disclosure statement (PDS) and target market determination (TMD) and obtain appropriate financial advice tailored to your needs.
SYMO interactive Pty Ltd & Glen James are authorised representatives of MoneySherpa Pty Ltd which holds financial services licence 451289.
