By Nicola McDougall, Editor, The Female Investor
You know how last week I was so excited about buying a property?
I was already high fiving myself for making the most of the softer market conditions in one of the hottest real estate markets in the country. Go, Nicola, I thought!
Well, that was before I learned the potential truth about our current borrowing capacity, courtesy of the rising interest rate environment and borrowing assessment regime.
In the blink of an eye, our budget was slashed to the point where our dream home remained just that – a dream that may or may not be achieved in the future.
Now, I’m not saying that we wouldn’t qualify for some additional borrowings, but not enough to buy what we wanted without selling something.
Ah, the “selling something” scenario. Easier said than done when the two options you would consider offloading are both tenanted until late this year and no investor in their right mind should sell a property with a tenant in situ in my opinion.
Between now and then, too, prices are likely to reduce and interest rates increase so there’s hardly any point “selling something” if you still wind up on the wrong side of the borrowing ledger, is there?
I can’t say I was surprised by the news that as far as the banks are concerned, we are not “worthy” in their opinion.
I’m not surprised because the same thing happened in 2017 and 2018 when lending restrictions kept me, and thousands upon on thousands of other investors, on the side-lines – which is part of the reason for the current rental crisis by the way.
No one should ever borrow more than they can afford, but it does irk me that a professional couple with no dependent children living at home, oodles of equity, and a positive property investment portfolio still can’t qualify for enough borrowings to buy a house. And, before you wonder, our budget was $1 million or less.
It’s peeves me even more because this year we hit a PB on our combined pre-tax incomes, after working very hard the past two years to do so, which seemingly puts us in the top 20 per cent for average annual income in Australia. Yippee – not really as it goes….
However, that doesn’t appear to count for much if you’re keen to expand your portfolio and banks are assessing your loans at a figure that is designed to say “no” as often as possible to borrowers.
Of course, this is completely a first world problem, but these types of rapid policy changes have much longer-term impacts, especially on rental markets – which is what happened in 2017.
For example, our current home was going to be turned into a rental property, but that can’t happen now because we are not going anywhere, which means one fewer property available for tenants in a location that has a vacancy rate of just 0.6 per cent.
Likewise, if I did decide to offload one of my properties later this year, that again would reduce the number of rental properties available for lease.
New lending data is also already starting to show a softening of investor activity, when it had just hit historical averages after five years well under the usual level of transactions.
One would have hoped that hard lessons would have been learned from those over-the-top lending restrictions some five years ago – given the current rental crisis around the nation was written in the stars from that moment – but it appears that the “powers that be” have not learned anything at all and are destined to repeat their mistakes of the past… with tenants set to pay the biggest price.
