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Popular property strategy hits tough times

Popular property strategy hits tough times

Interest-only loan approvals have plummeted, compounding the stress being felt by clients with highly leveraged property portfolios.

Business Katarina Taurian 19 September 2018

Interest-only loans now represent 16.2 per cent, or $61.2 billion, of new home loan approvals, according to the latest data from APRA. This represents a 54.9 per cent dive in the last quarter.

Interest-only loans are often encouraged as a way to maximise cash flow when building a property portfolio, as opposed to principal and interest payments.

Investor home loan approvals also dropped by 12.4 per cent over the quarter, representing 31.1 per cent of new home loan approvals, a total of $117.5 billion.

Conversely, APRA’s statistics have shown a 4.3 per cent ($10.6 billion) year-on-year rise in owner-occupied lending, which now represents 68.9 per cent ($260.6 billion) of new home loan approvals.

Access to finance has proven difficult for accountants and clients alike in recent months, in the wake of the royal commission and tougher regulatory conditions from APRA.

On the individual level, banks are pulling out altogether of perceived riskier financing arrangements, like limited recourse borrowing for SMSFs. There are now no major banks accepting new SMSF loans.

The pressure on clients is also combined with a drop in property prices in capital cities like Sydney and Melbourne.

This is particularly problematic for off-the-plan purchases, where financing is finalised upon settlement, which is often years later than when a contract is initially entered into.

“In some cases, clients have ended up being more out of pocket… or they don’t lose money, but they forgo opportunity,” said H&R Block SMSF director Kimberlee Brown earlier this year.

Clients are also struggling with changes to allowable deductions for their investment properties, which you can read more about here.

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Popular property strategy hits tough times
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