Why is it harder to get finance now?

If you are an investor and want to expand your property holdings you have no doubt worked out that it is much harder to get finance than it was 2 years ago.

So why did all this happen? How come it is now more difficult to get finance?

To answer this question, we need to look back about 3 years ago when the Sydney and Melbourne markets were full steam ahead with growth rates of +15% p.a. The Sydney market had gone from a respectable $600,000 median house price in 2010 to a whopping $1.2 million in 2017. Melbourne had pretty much done the same. There was then an uproar to say that the general public and First Home Buyers would never be able to afford to buy a home. What was then decided was that APRA – which is the regulatory body behind lending would step in and force banks to lower the amount that they were lending to investors. APRA set some very stringent targets that the banks needed to meet in order not to face fines etc. This served to slow the amount of money flowing into the Sydney and Melbourne markets and thus slow down the level of growth.

What then happened after that was unexpected. Along came the banking royal commission. This identified that the banks had been acting improperly and lead to the banks being even stricter in order not to have any bad loans on their books.

The way they are restricting funding is 2 fold:

  1. They have reduced the LVRs they will allow. No longer are we able to get 98% loans, investors are now maxed out 90% with most being lower than that.
  2. Indicative rates used to calculate serviceability are now at 7.5% even though you may only be paying 3.5% on your loan. This reduces servicing considerably.

Where to from here?

APRA’s needs have now been met. Banks have their loan books in line with the set requirements. The Royal Commission is now the thing causing the headaches but just like a headache, it will pass. Once the Royal commission has passed, keep an eye on the undervalued markets such as Brisbane take off. They are poised and ready to go and once the access to funding gets easier, you will see these markets increase considerably in value. This will surely happen as banks once again push funds out to gain market share and profits.