When you are young and just starting out you think you know everything.
As you mature, life presents a few challenges to overcome and you start to realise that you don’t know as much as you thought.
When you reach an age where you are able to pass on your experience, others may not listen because they think they know everything. Besides, experience is based on the past, not current conditions.
Can we benefit from past experiences when reviewing the current environment?
From an Investors point of view, past experiences will be an asset for every change we confront. We are constantly seeing lender after lender increase the interest rates for Interest only and variable rate investor loans in general.
How should we be viewing this constant change and more importantly, what can we do about it?
First of all, let’s recognise that change in itself is not a bad thing. Dealing with change is easier with experience and seeking advice from people who have done it before is a short cut to gaining experience. In this climate of rapid change one thing is certain. Keeping on top of the situation gives you an advantage over those who choose not to.
Regular portfolio reviews should be the norm rather than the exception for those who want to progress. Predictions of slower growth could lead to a different mix of investment properties within a portfolio.
Does this signal a move away from Capital growth properties to smaller portfolios with easier to maintain shortfalls? Possibly. Given the diminishing role equity access is playing off the back of tightening credit policies maybe we are seeing the new strategy appear right before our eyes. Perhaps the days of buying exclusively for growth are over and properties that have a modicum of growth coupled with solid rental yields are the key to the future. We can also say that income is definitely what lenders want these days from a servicing perspective so this would be attractive for them.
Is it time to look at other loan options?
There is no doubt that APRA wants to see P & I as an option from investors. Minimising the potential risk of overexposed borrowers is high on their agenda. Traditionally we have always considered variable, I/O as the optimum set up and using the resultant surplus cash to pay off the home. These days though, the increasing margins being applied to I/O and investor loans are getting quite high. Changing to P& I would minimise that somewhat although the increases to the repayment amount must be considered.
If things keep moving in the same direction it’s possible that equity release might become tougher, so perhaps linking properties will become the norm. Maybe the investment loan of the future will look like this; P & I, 25 year term and linked to the PPOR?
One thing is certain, old assumptions should be revisited and new ones considered.
Smart investors move with the market and react to opportunities. While it’s clear that rampant speculation of huge market corrections are unfounded, it’s still healthy to consider the implications on your own position.
How are you positioned for safety and how are you positioned for growth? Although each of these require an opposite approach we can use similar methods to address them.
For example, setting a fixed rate mortgage against a property that has had the equity maximised and identified as a long term hold is a prime candidate for safety. Do you have any that fit that role?
On the other hand, properties that can be turned over, renovated or have equity released can be optimised for growth with variable Mortgages, in order to create other opportunities. How many of your properties should be refinanced with that view in mind?
However, all of these options depend on choosing the right lender from an ever changing list of credit criteria so that your particular needs are met.
This is where our Mortgage Professionals come in. Our advisors have years of experience in dealing with almost every type of scenario you can imagine. Call us today so we can help identify your opportunities.
Isn’t that what experience is all about?
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