The main banks are currently governed by the Reserve Bank Loan to value (LVR) restrictions when it comes to investment property. They have advised that main bank lenders must adhere to a 40% deposit minimum for investments. This deposit can be an accumulation of savings and available equity from other property, but the ration must provide 40% deposit minimum.
However, if the investment property is being constructed as a new development, then this falls under a current exemption and the main banks can lend higher on this investment. 20% deposit minimum and 80% borrowing is possible for new development investment.
We do however have lenders on our panel that do have the capacity to lend with a smaller deposit on investment property purchases. In some cases, they can lend on an investment purchase with a 20%-30% deal case by case, however, do generally charge a higher interest rate for this deposit flexibility.
When purchasing an investment property many clients look at this for the long-term capital gain on the investment. They are generally happy if the mortgage repayments, rates and insurance on the home are covered by the tenant’s rental income as to limit the amount of funds they need to inject into the investment to keep in operational. As clients are looking for the longer-term capital gain this makes Interest only a viable mortgage structure for investment properties.
The ability to only pay the interest on the loan keeps the mortgage repayments costs to a minimum. By doing so it enables the rental income to service the cost of the property whilst the owner holds the property for long term capital gain. We can request on rental purchases an interest only period on the mortgage to assist with the cashflow of the rental.