You can’t help but hear all the chatter and commentary about potential lending limits for property buyers. Some commentators think lending is too loose and this is helping to push property prices too high. Recent speculation has centered on the Reserve Bank restricting banks to lending a maximum of 80 per cent of the property price, such as for investors and overseas residents.
The Reserve Bank has been jaw-boning for several months now about rising property prices and the growing amount of property debt held by financial institutions. But, obviously, the institutions think otherwise, as they continue lending to all buyers; in some cases up to 95 per cent of the purchase price.
Although I don’t agree with this type of intervention, and I doubt it will be introduced, I have always advocated that buyers have as large a deposit as possible.
For first time investors, I recommend a 30 per cent deposit, for second purchases this can be eased back to about 20 per cent and from there on, it’s a matter of spreading the total debt across the whole portfolio. As each property increases in value and as rental incomes grow, the portfolio can usually support new purchases made with lower deposits.
Current prices are strong and property bargains are harder to find but they are still out there to be found. So I have to disagree with the theory of unsubstantiated property prices or a “bubble” and I don’t believe there is any need for any macro controls on lenders.
Experienced investors always build in a buffer against rising interest rates and stalled rental incomes; it’s called sensible investing.
Until next week