Hi, Niro Thambipillay here from Investment Rise. And in this video, I want to talk about the recent changes from lenders that are affecting investors. Put simply, if you’re an investor, an Australian citizen, an Australian resident who wants to invest in property, residential property, you’re being attacked. Yes, there’s been a lot of news recently in the press about foreign investors being attacked and obviously, the new First Home incentive that the Sydney Premier, rather the New South Wales Premier has instigated. All well and good, but the lending changes are not getting a great deal of news time, yet I believe that the way banks are assessing lenders are going to have a far greater impact on you if you’re looking to buy an investment property this year or even early next year.

The primary change is that most banks right now, and I expect soon almost all banks, are removing the ability for investors to borrow 90% on an investment property and with an interest only loan. So what does that mean? Well, if you’re an investor that means that you either need to do a 90% loan and go principal and interest. Now, that’s going to absolutely kill your cash flow especially if you’re looking to buy in Sydney where rental return at the moment is ridiculously low, or you have to do an 80% loan to get the interest-only facility.

So what does that mean from a numbers perspective? Well, let’s just say you were trying to buy that property for say $700,000. Well, you used to be able to get in with a 10% deposit, which was $70,000, plus some costs of say around about $85,000 or $90,000. Today, you can’t do that. Essentially now you need to come with a 20% deposit, which is $140,000 plus your stamp duty, legals, and everything else.

It’s no wonder that the amount of investor activity in Sydney has dropped by 20% recently. Now that’s deliberate. The banks and the government want to reduce investment activity in Sydney and Melbourne as well, our two hottest markets. Also, they want to reduce foreign investment activity to try and cool the markets and then introducing these First Homeowner incentives. All well and good, I think that’s fine, but what does it mean for you as an investor? Well, I think number one, you’re going to have to reconsider your investment strategy because if you’re looking to buy-in in our high-priced markets, you’re either going to have to do a principal interest loan, which means you need to have a really high-paying job and have the cash flow to be able to get into that investment property, or you need to go elsewhere. And that’s really what I believe is going to happen because with investors now needing to come up with 20% deposits, they’re going to have to look at cheaper property. For example, with $90,000 or $95,000, you can no longer afford a $700,000 property, but with that same $95,000 and if you need to come up with a 20% deposit, you can afford a property of say $400,000 or $450,000.

Now, where do you find those kinds of purchase prices? Well, not in Sydney and very difficult in Melbourne as well. So what we’re going to see now is more investment activity going into the areas where price is a little bit cheaper, which is going to start driving prices up. So if you are an investor, you need to start thinking differently. What worked even as recently as, say, two months ago is not going to work right now. You need to start looking at where can you get the maximum return for your money, or you’ve got to put in more money into a deal, whichever the option is that you have. But I strongly believe that going forward, investors need to look outside of our two most expensive markets, looking at areas that are more affordable where the rental yield returns are much stronger and where with, say, $95,000, which really is a bare minimum these days to get into an investment property, do you still can? Yes, it’s going to be a 20% deposit, so you’re looking at purchase prices of around about $430,000 or so.

That’s going to be a complete change in how investors have thought, it’s going to affect the different capital cities and even some major regional cities, regional towns, quite differently and you as an investor need to be prepared to accept the change and then move forward to where the next opportunities are there for you.

If you’re looking to invest in property, do you think these changes are fair for you as an investor? Yes, they’re helping first-time buyers and that’s fantastic, but what about investors, what about people who want to invest in a property just to create financial security for themselves, have a sense of financial certainty? Are these changes going to change the way you look to invest? I’d love to hear from you. Leave me a comment below. Bye-bye.