It shouldn’t surprise you that the investment landscape has changed somewhat over the last few months: APRA’s strengthening of a bank’s capital requirements spurred lenders to increase rates on investment loans and in some cases, reduce leverage ratios. The SMSF industry too is amid change, with maximum loan to valuation ratios declining and some lenders exiting the space entirely.
Blue Wealth has long advocated a responsible lending and investment philosophy and we support regulatory changes that strengthen the industry and ensure clients are supported and protected. Anyone who’s been to a meeting with a Blue Wealth investment specialist will know that the ability to hold an asset in a changing investment landscape is tested on many levels; be it an environment of increasing interest rates, declining rental yields or dampened growth rates. Leverage ratios have declined to levels we’ve long recommended, meaning some of you reading this may require a higher initial investment. The silver lining? The more you invest (the higher your deposit), the lower your loan amount and, by extension, the lower your ongoing holding costs.
Tighter lending policy and subdued market sentiment has resulted in valuation firms adopting an increasingly conservative approach. It is, however, important to keep perspective of what a bank valuation tells us about a property’s value; rather than being a forward looking gauge of an investment’s capital growth potential, a bank valuation provides only a backward looking, often subjective, assessment of a property’s worth. Valuation firms work in the best interests of financial institutions meaning that incentive is biased toward being conservative. Unfounded negative sentiment and the perpetual discussion of a property crash that never eventuates inflates the degree in which a valuation firm acts conservatively.
Negative sentiment and recent lending changes shouldn’t be seen as road blocks to your investment aspirations. As I frequently say, property investing is a long term strategy to wealth creation, and through the years you’ll encounter a number of things that may lead you to question your investment decisions. Just think about how the world has changed over the past two decades: recessions, wars, mining slowdowns, political coups d’etat, nuclear deals and the collapse of some of the largest financial institutions in the world. A century’s worth of chaos, packed into two decades.
So how do you live above the chaos? Get educated, have courage and invest with the support of Blue Wealth.