Australian residential property continues to be one of the strongest performing asset classes for investors.Over the last 25 years, house prices in Australia have continued to increase at a steady rate of 6.8%, making owning an investment property both a popular and lucrative option for Australians.Prior to the recent COVID-19 slowdown, property experts predicted the return of the housing boom, as Melbourne property prices continued to rebound strongly.
This is because investment loans are considered slightly riskier than owner-occupier loans.There might also be some differences in the deposit you are required to put down on a property to be able to access an investment loan.With owner-occupier loans, it is possible to get very high loan-to-value ratios (LVRs), as much as 95%, and banks and lenders will often accept various forms of collateral including guarantees from parents to help their children enter the property market.For the most part, these types of loans are less accessible to investors and lenders generally like to see a 20% deposit.
However, potential investors can still access these incentives, they will simply need to purchase and occupy the home for a period of time, prior to making the shift to renting it out as an investment.
They do this so they can be sure that you are able to meet your loan repayments based on your income.For owner-occupiers, they will need to be able to meet 100% of the ongoing loan repayments.
However, investors have a big advantage here as they can include future rental income, which can dramatically increase your ability to borrow money from a bank.It is worth noting that banks will only assess between 70-80% of rental income, as that takes into consideration periods of vacancy for the rental property, property management fees and ongoing maintenance costs.Another big advantage when it comes to getting investment loans is being able to access the equity in other properties.
That is because your weekly or monthly payments will be lower, enabling you to potentially own an investment property when you otherwise could not.Over time, given the strong returns, we’ve seen in the Australian residential property market, the capital growth will allow you to effectively pay out the loan as the value of your property appreciates over time.