Knowledge is power
It doesn’t matter which way you look at it, getting bank funding at the moment is harder than it has been in quite some time. Not only because banks are becoming more and more fussy as they continue to ‘cherry pick’ deals, but also for the simple fact that all these rules and bank interpretations of those rules are so confusing! What does this mean? Growing your portfolio is getting harder to achieve. The cycle will come back around as it always does, but for now this is the way it is.
There’s been a lot of media attention lately about investment coaches giving advice on how to get the best deal when purchasing. Some of this has integrity and some of it doesn’t. Whatever your opinion though, at the end of the day as investors, we are all looking for tips and tricks that are going to put us in a stronger position to continue to grow and achieve what we want to achieve. This doesn’t mean you need to deceive but it does mean knowing what’s happening and why. Knowledge is power, and without it we can’t continue to move forward.
I’ve talked about this before and it’s worthwhile talking about again. Unless you have an extremely good personal banker - which are somewhat of a rarity (though they do exist) - then the need for a good adviser who has access to most or all the lenders is extremely important if you want to continue to borrow.
Take test rates for example. This is the rate that the banks use to test your serviceability when seeing how much borrowing you can afford. Right now, the difference between the lowest bank test rate (5.65%) and highest test rate (7.85%) is a crazy 2.2%. It may not sound a lot but that’s $1,833 per month in servicing income on a $1million loan which would give you approximately $250,000 in additional borrowing power. What would that mean for you? A better-quality property? A minor dwelling? Or a deposit on another property? What it certainly gives you is options and the all important ability to choose.
Tighter credit conditions and differing bank policies are proving why as investors you should be banking with more than one lender. The one bank trap has never been more constraining. Even if you aren’t looking to grow, you never know when you are going to need access to funds. Whether it be through borrowing more or selling to liquidate cash, leaving your fate in the hands of one lender would be a poor decision and it could be costly.
As credit policies continue to tighten and the red tape continues to roll out, your knowledge of the differences across lenders will affect your ability to grow. Whether now is the time to add property or the time to sit on your hands and consolidate, it’s going to pay to talk to an adviser. Let them do the work for you and let them understand the differences that will put you in control. After all, that’s what they are paid to do.