The Australia Bureau of Statistics released the September new home loan data this week.
Australians took out $25 billion worth of new loans in September. This number was 8% lower than the previous month, and 19% lower than the same month last year.
The September figures are still quite high, though.
It’s just that we’re coming off a period of record low interest rates. In fact, the Reserve Bank cash rate was still sitting at 0.1% this time last year (versus 2.85% today).
The number of loans taken out in September 2022 was 39% higher than the same time in 2019. In other words, if you compare the numbers with the last time rates weren’t at pandemic-induced-all-time lows, loan volumes are up more than 3%.
Investors took out 68% more loans in September 2022 than they did in September 2019. Owner occupiers took out 29% more loans.
The banks are still lending money, and there’s still buyers in the market.
I’m often asked what’s the hardest part about building wealth through property investing.
For me, it’s finance; being able to borrow money is the biggest challenge when trying to build a portfolio of investment properties.
Only one in a thousand Australians own four or more investment properties. I think you’ll find that the hurdle that most struggle with is being able to borrow money to keep growing the portfolio.
The reason finance is the biggest challenge is that it’s the part of property investing that you have the least control over, as well as the part that is most frequently changing. Literally, every week there is change; whether that’s the rates the banks charge, the amounts they’re willing to lend, or the types of products they offer.
I’ve seen lots of people who have bought properties that have grown in value but failed to leverage that into a more successful portfolio of properties that gives them compound growth.
Here are three things you can do that will give you a massive advantage when it comes to the finance side of building wealth.
- Divorce yourself from emotion
What a bank will lend you today could be hundreds of thousands less than what they were willing to lend last month.
The banks have different calculators and rules when it comes to how much they are willing to lend, and their rules and calculators get changed all the time.
What’s more, there’s no one lender that is constantly the ‘best’ when it comes to borrowing capacity.
I was recently working with my broker to find out my borrowing capacity.
Across 25 different lenders, there were 25 different amounts that the banks were willing to lend me, ranging from $400,000 to $680,000.
The big 4 banks typically have the harshest lending restrictions, and yet four in five Australians bank with them. It’s a mistake to stay with a bank because you’ve “always banked with them.”
- Ask for better rates
Most banks will put a 3% buffer on your current interest rate, when determining how much debt you can service (and therefore how much they will lend you).
Therefore, the rate you pays makes a big difference.
Most Australians are paying higher rates than they should be. It’s often referred to a loyalty tax with the Reserve Bank of Australia revealing recently that a typical bank customer pays 0.5% higher interest rate than what their bank offers a ‘new customer’.
I’m no exception. I recently rang one of my banks to ask for a better rate. In one phone call, they dropped my rate from 6.5% to 5.25%. On my interest only loan, that worked out to be a saving of more than $5,000 a year!
The best part was it increased my borrowing capacity by tens of thousands of dollars.
- Push your rents
Banks count your rent as income when determining how much debt you can service (and therefore how much they will lend you).
A friend of mine called the other day to ask my advice. Her tenant’s lease is up, and she currently gets $500 per week in rent. Her agent has told her the current market rate is $600, but her current tenants could pay a maximum of $550 per week.
She figured she might as well take the $550 because if the property sat vacant for a couple of weeks between tenants, she’d be no better off in the short term.
I reminded her that she needed to think about her borrowing capacity. She is trying to get borrowing capacity to buy another property and that extra $50 per week would increase her borrowing capacity by tens of thousands of dollars.
There’s a lot of things beyond our control when it comes to the banks and finance. You can’t get bogged down on that. What you can do is take matters into your own hands by taking action on the things that are within your control.
It’s also why your mortgage broker is such a vital member of your team (as I wrote last week)!
