As more and more people choose to live in cities, there will always be a demand for rental properties here in Sydney. However, after the Royal Commission inquiry into banking we’ve seen a greater scrutiny of borrowers’ finances. It is not as simple to get an investment property loan as it was three or four years ago.
If you are thinking about starting or growing your investment property portfolio, now is a great time to look around. The city will always appeal to tenants thanks to its work opportunities, beaches, heritage and climate.
Here at Boutique Property Agency, we maintain close links with our trusted professionals, from stylists and tradespeople to photographers and mortgage brokers, in order to provide our clients, both buyers and sellers, with the best possible all-round service. We talked to mortgage broker, Sarah Quinn, about what investors need to think about when applying for a mortgage for an investment property. She is in regular contact with banks and can always offer great advice.
Thanks to low interest rates, many first-time investors are now starting to look around for investment properties. If you’re thinking of dipping your toes in (and there are many benefits to an investment property, as we discussed in a previous blog), read on to find out Sarah’s insights into investment property loans.
Your employment and credit history are critical
Banks like to see that you have three to six months minimum in your current job, depending on the lender. It’s also good to show them that you have a consistent work history in your field.
Ideally, you should have no late payments or bad debts. If you do have one or two late payments on direct debits, you will need to give a reasonable explanation.
On this note, maxed-out credit cards and the use of Afterpay don’t look good if you are seeking a mortgage. It’s advisable to pay down your credit cards before applying for a mortgage. Ahead of taking out a loan, avoid store cards and Afterpay altogether.
Take into consideration your living expenses
“This is a significant consideration for lenders,” says Sarah. If you are eating out every night or a shopaholic, it will show up on your bank statements and be included in monthly living costs. Be mindful of your spending each month as you prepare to apply for a loan.
Banks will look at your overall financial picture
While your income is a big factor, it’s not the whole picture. The bank will look at your income, less your current debts and monthly living expenses, plus your potential monthly rental income, to work out how much you can borrow.
Interestingly, right now banks are favouring applicants with straightforward finances. Many investors with multiple properties are being denied further credit, while first time investors are finding it easier to borrow now than previously.
Choose your property with rental income in mind
There is no particular property the bank would prefer. The bank just needs to see that you can service the loan and that it will offer an adequate rental return. Obviously, the greater rental return, the less the buyer has to put in towards the loan repayments each month. And of course the property needs to be livable, with running water.
Get the right loan for your circumstances
This is when a mortgage broker comes in handy. Because mortgage brokers are not tied to any particular bank, they can present to you lenders from both the big four banks and smaller ones, to find the right investment property loan for your circumstances.
Talk to us
If you are thinking of buying or selling an investment property in inner Sydney, give us a call to find out what we have on our books, and what we have coming up. We are also very experienced property managers, and can help you out in renting out your property and finding the right tenants. Contact us today for a no-obligation chat.