Six tips to increase your investment borrowing capacity in APRA crackdown: John McGrath

Following the banking regulator, the Australian Prudential Regulation Authority (APRA), expressing concern that investment lending is too high, lenders have changed their borrowing criteria for investors in a number of ways.

Changes to the criteria have seen most lenders reduce discounts on investment loans and on interest only loans.

Some have limited their acceptable Loan to Value ratios (LVR) for investors to 80% to 90% of the purchase price especially for properties in Sydney.

Most have increased the buffer they add to interest rates to assess serviceability, now typically adding 2.25% to 2.75% to the standard variable rate.

Estate agent John McGrath has offered four tips for improving borrowing capacity - or making sure you can get the loan - after consulting with Alan Hemmings, general manager of McGrath’s mortgage broking division, Oxygen Home Loans.

1) The most effective way to reduce your LVR (Loan to Value ratio) is to save for a larger deposit. If you already have a property, make sure you are building the equity up (by principal and interest repayments) to release this cash to help fund the next purchase.

2) Another deposit option is using a parent’s property as a couple of lenders allow 20% of the purchase property to be secured by a parent’s property

3) It’s important to understand the valuation process and how to minimise the risk of a valuation coming in low and jeopardising your loan application.

There are lenders that will determine the value by using the Contract of Sale, use these lenders and you lessen the risk of paying LMI or having the loan declined due to a low valuation

4) Reduce the limit on your credit cards (if your limit is $10,000, the banks will use this figure even if you only use a portion of this every month); and choose a lender that will use interest only repayments on existing debts or principal and interest without adding a buffer.

5) Use a broker as they know all the ins and outs of how every lending institution on their panel works.

6) It’s worth remembering that having several loan rejections on your credit history can be damaging too .

Alan Hemming’s advice to investors was "don’t let the changes in lending criteria influence your decision to invest."