We are rapidly approaching the anniversary since the Covid-19 virus was first detected in Wuhan, China. Who could have possibly predicted what a devastating effect this would have on the global population in 2020.
Over the past ten months we have watched as cities have been effectively locked down, then we have all lived through some form of limitation to our ability to move freely around our towns, States, Countries or the Globe.
Some have been more fortunate than others, in Australia the second wave that has so dramatically affected Melbourne and Victoria has been remarkable, I feel very fortunate to be living in Brisbane in our State bubble, Queensland would have to have been one of the best places in the world to live, particularly in the current environment!
This brings me to the topic of my post, what are we seeing, in relation to where clients are buying and also how do these decisions affect the ability to obtain a loan?
Over the past 18 months or so, I’ve seen a notable change in the location’s clients are looking to purchase a property. Previously most purchases have been in each state’s capital cities, on the odd occasion there was a purchase outside of this.
This is definitely changing!
Only this morning a client contacted me to inform me he wants to bid at an auction for a property on the NSW Central Coast. We have seen a move to locations that would generally be described as lifestyle locations, for other clients this has been Byron Bay, Airlie Beach, Batemans Bay, Mornington Peninsula, Sunshine Coast, Gold Coast, Emerald Beach, Valla Beach, Kingscliff, Bright, Cairns even Bonnie Doon! These are all locations that clients have either bought or are looking to buy.
There are various reasons for the change, some clients noting they are buying the future family home and now believe they will be able to work from home in a more remote location. Others noting that when they repatriate, they will only work for a “few more years” and potentially rent in the city before moving to the lifestyle home.
One positive outcome over the past year has been that companies and individuals have been forced to investigate and better use technology, the move to a more remote workforce has accelerated rapidly this year, the move had started, but Covid 19 has massively increased the change.
So, from a lending perspective, if you are considering a purchase in a more remote area, eg outside of the metropolitan areas in each state, then what potential challenges might you face?
The questions we need to further investigate are:
Will the lender fund an investment property in this location?
Many landers will only fund purchases of owner occupied properties in more remote locations, purchasing an investment property, regardless of the LVR (Loan to Value Ratio) may not be possible and could potentially massively reduce the lender options available.
What are the rental opportunities for permanent rent?
When we apply for a loan, we can include rental income to service (show affordability) of the loan.
What is the permanent rental market like where you are considering buying?
In many cases the rental yield in a more remote location may be significantly lower, if possible at all.
Can we service the loan without the need for rental income?
What are the implications of short term or holiday rentals, how will the lender view this? As a general rule, lenders are lagging the market in relation to short term or holiday rentals. They won’t include the income in servicing the loan. If you have a property that you already rent via say AirBNB and can show a couple of years rental income, they STILL won’t allow this income to be used. The pandemic has added weight to their position, unless the property can be permanently rented, then the income can’t be used to service the loan.
How will I manage the property if it’s in a more remote location? There are companies or people who will manage the property, however, in many cases this can drain a substantial amount of the income. The property management is a cost, cleaning, marketing, all of these add up, is the income the property generates going to provide the return you require?
Over the past week I’ve read a number of posts and articles regarding the proposed changes the Federal Treasurer, Josh Frydenberg, noted to the current Responsible Lending rules. The changes being proposed effectively move some of the responsibility of taking on additional debt to the applicant and away from the Lender. Over time, once the legislation has changed, then this SHOULD increase liquidity, however, I’d suggest it may take a significant amount of time for Lenders to amend their policies and procedures to allow this liquidity to flow into the market.
If, like many Australian Expats, you are considering purchasing a property in a lifestyle location, then, please contact us and we can assist you in assessing whether this is possible.