How Do We Make Finance Work Again in This Current Market? By Vincent Power Sometimes we do things so often and for so long that we forget the basics of what we are doing. Yes, we know why we are doing it but what are the fundamentals, the recipe if you like. For example, do you know someone who can cook something without the recipe. They know the ingredients off by heart, they know the mixtures, no measurements are required. In fact they could do it blindfolded. Have you ever thought about what would happen if their favourite ingredients suddenly weren’t available?  No chicken, no rice or perhaps pasta has vanished. Sounds unlikely right? Let me relate that to property investing.  Remember 105% loans, 97% loans, No Docs at 80% or maybe 85% Low Docs, non Mortgage Insured 90% loans perhaps? Ah yes, the good old days I hear you say. All of these products were the ingredients that we used to have to make our favourite finance cake. Guess what? They are all gone! If we don’t have the ingredients how can we make the cake? Simple, let’s go back and look at the recipe again and understand what has happened. Over the last 5 years there has been tremendous changes for property investors.  We used to have a myriad of products to choose from that could fit almost any circumstance. Then we had the Global Financial Crisis or GFC. Investor specific products disappeared from the market almost as quickly as some of the established lenders. Very quickly the rules that  worked yesterday became blurred as the changing situation meant that the tried and true products were no longer relevant. So, how do we make finance work again in this current market? Rule 1  Use somebody else’s money Rule 2  Borrow as much as possible, safely Rule 3  Keep a safety buffer in reserve Rule 4  Only buy properties that Lenders easily accept The rules remains the same obviously, because they work like any good recipe should. The secret to continuing to move ahead is to adjust your strategy to fit with the available ingredients. Let’s look at how to do that. Well, Full Doc is still fine though there has been a movement away from high Loan to Value Ratios (LVR) such as 95%.  However, 90% is still readily available and it is still possible to add the Mortgage Insurance premium cost on to the debt savings valuable equity in the process. Interest rates are very attractive right now too. For example 5.97% is still available as part of a professional package and there are others sitting below 6.10%. That’s good value. Fixed rates have benefits as well with one Lender offering a 3yr fixed rate at 6.99% and several more sitting below 7.5%. If it’s a longer term you want, how about 5 years at 7.79% and there are still several lenders still below 8.00%. Lower LVRs such as 75% or less are preferred by Lenders these days and they encourage this by giving interest rate discounts of 0.80% in some cases, which is better than similar loans using 80% LVR’s. The downside to taking up these special offers is that you have to use more of your own money to start with. Currently, at the time of writing, we still have access to 80% Lo Doc loans for purchases. That is very good news to Investors who require this type of product. Refinances for Low Doc borrowers are restricted to 60% so clearly equity is going to be important now. The time it takes for you to accumulate equity, as well as the way you get it, will determine the time frame for your next project. You should also be aware of the sorts of properties that are not suitable for lending right now. Properties like student accommodation, serviced apartments, studio apartments and anything less than 50m2 are difficult to find finance for. While these properties do have advantages for investors, Lenders are reluctant to come to the party with normal LVR’s. Things might look tough but all you have to do is move with the market. Change is inevitable. There are some other important factors you should know about. Surprisingly, given the well documented problems the Banks have in raising funds, Non Bank lenders are making a welcome appearance on the scene. I think it’s too early to use the term comeback, but it is encouraging to see them being more active. I am always very happy to see some alternatives to the big Banks and you should be too. So we can see that by adjusting the strategy to include the changes you can continue investing in property. If all this looks too hard for you then I have good news. At Investors Direct we are used to dealing with these issues every day. Because of the large number of loans that we write we have access to a large number of Lenders. We see all the latest products, as well as critical information from people inside each Lender often missed by other Brokers. It’s these small differences that could make or break your application. We know its important to make sure your application is right first time.  Your future depends on it. Why not contact us and arrange for a FREE consultation before anything else changes. Remember, the recipe stays the same. Some ingredients are changing but the cake will still taste just as good. This article was written by Vincent Power, Senior Mortgage Finance Strategist, Investors Direct Mortgage Solutions.