Good News for Property Investors in 2019!
APRA announces removal of interest only loan restrictions
Worried about your interest only loan? There’s good news!
The Australian residential property market is looking forward to a very positive start to 2019. There was an announcement that from 1 January 2019 the financial services regulator, APRA will remove its 30% limit on interest-only residential mortgage lending for banks and other lenders.
The removal of the cap is expected to help increase competition amongst banks and deliver greater options for property investors looking to finance Australian residential property purchases.
Investor Benefits – Interest Only Loan
The APRA cap had significantly restricted banks in their ability to offer a range of products to property investors, which lead to inflated pricing for interest only loans.
Some lenders increased interest rates on interest only loans significantly. As a result, interest only rates were at much higher interest than Principal & Interest (P&I) loans, which are less risky for banks. The banks had to do this in order to reduce demand for interest only loans, which helped them stay under the APRA cap.
Property investment advisors, finance providers and mortgage brokers have strongly welcomed the news from APRA and are expecting greater flexibility in the products they can offer to clients. Increased competition amongst banks and opportunity for finance is a significant positive for property investors.
It is expected that APRA will maintain a strong eye on lending practices across the market and this is reflected in their statement “APRA expects that ADIs will maintain prudent internal risk limits on interest-only lending”. This level of caution is prudent.
Prospa Property Advisory welcomes the APRA announcement and looks forward to 2019 with a very positive view on the Australian property market. Access to exceptional detailed research and analysis provides our advisors with an extensive knowledge of the Australian property market and the best areas for our clients to invest. With our detailed systems and processes we are able to provide assistance to any property investor, be that someone starting their journey with their first purchase through to the experienced investor looking to accelerate the growth of their property portfolio.
As we look forward to 2019 now is the best opportunity for you to plan and implement your residential investment property strategy.
Here’s some more info about Interest Only loans for property investors.
Benefits for Investment Properties in Australia
Interest-only loans are a popular choice for Australian property investors. They offer flexibility and financial advantages that can help you maximise returns and manage cash flow effectively. Here’s why they’re worth considering.
interest only loan – Flexible Cash Flow Management
One of the biggest advantages of interest-only loans is the ability to manage cash flow effectively.
Lower Monthly Repayments
With interest only repayments, you only pay the interest portion of your loan for a set period and none of the principal amount. Subsequently, your monthly repayments are significantly lower compared to a principal and interest loan. Lower repayments free up extra cash, allowing you to reinvest in other opportunities or cover unexpected expenses.
Improved Investment Strategy
Reduced repayments mean you can redirect funds into other areas of your property portfolio. This could include renovations to increase rental yield or saving for your next investment.
Tax Benefits for Property Investors
Interest only loans can offer attractive tax advantages, particularly when investors are aiming to maximise their deductions.
Tax-Deductible Interest Payments
The interest portion of your loan is typically tax-deductible in Australia. This can reduce your taxable income, helping you save money at tax time.
Increased Investment Potential
By claiming deductions on interest payments, you can potentially increase your borrowing capacity for future property acquisitions. This can accelerate the growth of your investment portfolio.
Strategic Financial Planning
Interest-only loans provide investors with the flexibility to plan for the future and adapt to changing market conditions.
Focus on Capital Growth
Many investors use interest-only loans to focus on capital growth. By keeping repayments low, you can hold onto properties in high-growth areas, maximising long-term gains.
Flexible Loan Structures
Interest-only periods are usually offered for 1 to 5 years, giving you time to implement your investment strategy before transitioning to principal and interest repayments. This flexibility can be a crucial tool in your financial planning.
is an Interest Only Loan Right for You?
Interest-only loans aren’t for everyone, but they’re a powerful tool for the right investor. They work best for those with a clear investment strategy and a focus on long-term growth. By reducing your short-term repayment obligations, they allow you to leverage your resources and explore additional opportunities.
As always, it’s essential to seek advice from a Qualified Property Investment Advisor (QPIA) to ensure this strategy aligns with your financial goals. At Prospa Property Advisory, we’re here to guide you every step of the way.
