There are lenders who can do it but we’re not sure for how long!
Following recent policy changes by the bank industry regulator, borrowing up to 95% of the purchase price or Loan To Value Ratio (LVR) to buy an investment property is now only available through a handful of lenders.
By building a strong application, you could soon be on your way to investing in real estate with a 95% investment loan.
How do I qualify?
- Your deposit: Most lenders require you to have saved 5% of the purchase price but some of our lenders will allow for your deposit to come from equity in another property, a personal loan or a gift from your parents or a close relative.
- Investment portfolio: Some lenders will only allow you to borrow 95% LVR if you have equity in another property. However, exceptions can be made.
- Negative gearing: Only some lenders take negative gearing benefits into account so you’ll need a strong income.
- Credit history: Your credit file should be clear of black marks including defaults, judgments, bankruptcy and too many credit enquiries.
- Employment: Being in your current job for 6 to 12 months is a requirement for most lenders but not for all of them.
- Your investment property: Lenders prefer standard properties in capital cities or major regional locations however some lenders can consider exceptions.
Not sure if you’re eligible?
Get in touch with one our 95% investor loan specialists on 1300 889 743 or by completing our free assessment form today.
Can I buy multiple investment properties?
From 2015 onwards, the way that borrowing capacity is calculated has changed. What it means for Australians with multiple investment properties is that they will find it harder to borrow the amount they need.
Previously, many banks would’ve taken negative gearing benefits when assessing your serviceability and assess your current debts at the actual interest rate that you’re paying.
Now, few lenders will include tax deductible interest and many will assess your existing loans at a higher interest rate than what you’re actually paying.
Which lenders lenders will approve the amount you need?
Please call us on 1300 889 743 and we can provide a free serviceability assessment.
Why aren’t the major banks lending to investors?
The major banks, credit unions and building societies are what are known as Authorised Deposit-taking Institutions (ADIs).
ADIs are basically institutions that allow people to open a bank account and deposit their money which means that they’re governed by the Australian Prudential Regulation Authority (APRA).
For the past couple of years, APRA has raised concerns over the level of lending to investors and has recently pressured the banks to limit their lending to property investors. In particular, the major banks have limited 95% investment loans and 90% investment loans as these are seen as a higher risk.
As a result of these policy changes, many Australians have been locked out of the property market.
Despite this, it’s still possible to get a 95% investment loan through other means.
How do they assess your borrowing power?
We have access to other lenders that are not governed by APRA such as specialist and non-bank lenders.
This allows us to help good quality borrowers to qualify for a loan and expand their property portfolio.
Interest rate discounts
How to get a great interest rate
The better your situation, the more lenders you can qualify with.
If you have equity in another property we can usually get you a significantly discounted rate or if you’ve saved your deposit yourself.
Specialist lenders don’t charge a large premium so if you don’t qualify for an interest rate discount, it’s not a big deal.
We’ll work to get your 95% investment loan approved so you can into the property market and then, in 2 to 3 years, we’ll refinance your investment loan at a better interest rate.
How can I reduce my LMI?
Lenders Mortgage Insurance (LMI) is an insurance premium charged by most lenders for risky loans. Typically, this is for loans that are for more than 80% LVR.
Mortgage insurance is basically there to protect the banks in case you default on your investment loan and the cost can quickly add up depending the LMI premium rates of the lender that you’re applying with and the amount that you’re borrowing.
For example, for a $300,000 property on a 95% investment loan, you could be paying almost $8,000 in LMI. Use the LMI calculator to get an accurate figure of how much you could be paying in LMI for the property you want to invest in.
Of course, lenders don’t all have the same LMI premium rates but the problem is that they don’t usually share this information to the public so it’s almost impossible to compare if you’re trying to do it by yourself.
Luckily, as a mortgage broker, it’s a part of our job is to compare LMI rates and get you the best deal possible on your mortgage insurance.
One strategy is to capitalise or ‘add’ the LMI premium on top of your investment loan, bringing your total loan to 97% LVR.
What it means for you is that you avoid having to pay LMI upfront and simply pay it off, interest-free, when you start making your mortgage repayments.
Another tip is to try and save a little bit more for your deposit and bring your LVR down to 94% plus LMI. This will put you in a lower LMI bracket which means you’ll reduce your mortgage insurance premium.
Are 95% investment loans credit scored?
Some lenders use credit scoring when assessing your application and others don’t. Part of our assessment will be working out which lenders you qualify with.
As a general rule, lenders that credit score have lower interest rates but keep in mind that it’s a mortgage brokers to compare interest rates for you anyway.
What are exposure limits?
Your mortgage exposure limit typically refers to a limit on how much you can borrow to buy a property in relation to any existing debts and loans you already have with a single bank.
As a general rule, if you’re current debt position plus the investment loan with the same bank ends up being more than $1 million, the lender will be more likely to decline your application.
So if you already own a number of investment properties, you could be in trouble. Luckily, some lenders will accept up to $10 million in exposure.
There are other types of exposure that could also see your 95% investment loan declined:
- Total banking group exposure: This is a little different to having multiple loan facilities with a single bank in that you could may try to avoid exceeding your mortgage exposure limit by spreading your loan facilities across a number of different lenders. The problem is that if the lenders are owned by the same company or conglomerate, then your exposure will be assessed as being part of the same bank.
- Exposure in one development: Planning to invest in an apartment? Otherwise known as ‘individual risk’, most banks will restrict you to lending less than 20-25% or 3 or 4 units in single development.
- LMI exposure: This refers specifically to the exposure limits for mortgage insurance providers. Most will accept up $750,000 for one security and up $2.5 million for 3 or 4 properties.
- Rental reliance: Most banks won’t accept your situation if more than 50% of your total income comes from rent while others will not consider negative gearing in their assessment. There are exceptions to this with select lenders.
- Debts shared with other people (common debt reducer): If you’re buying an investment property with someone else such as a friend or your spouse then the bank looks at the total exposure to your group rather than your individual exposure limit. Sometimes it may make more sense to borrow separately than with other people.
Is it more expensive to go with a non-bank?
Even after with these policy changes announced by APRA, there isn’t normally a large difference in the interest rates offered by banks as opposed to non-bank lenders.
In fact, a non-ADI can sometimes offer an overall investment loan package that’s a lot more competitive than anything the banks can do.
Apply for 95% investment loan
We’re specialists in 95% LVR investment loans.
To find out if you qualify, call us on 1300 889 743 or complete our free assessment form today.