Investment Loans

The most popular types of investment loans are for a property purchase and usually for a property that will be rented out to cover the mortgage. Investment loans such as this can cover a portfolio of properties and the lenders are quite happy with this as long as certain conditions are met.

Investment Loans

It is not uncommon to see lenders willing to offer a loan of up to 90% of the value of a property with the only conditions being that the borrower has a good credit rating and that the rental income is at least 125% of the monthly repayments. Many investors obtain the deposits by re mortgaging a property and then simply rinse and repeating each time they purchase a new property.

They are depending on capital growth and you often see these type of investors re mortgaging their investment properties so that they can access the equity in each one.

This is all well and good but if the market moves against then then is can present a totally different scenario. As an example you only have to take a look at the UK. The buy to let market over there saw many thousands of people investing in properties to rent out to such an extent that blocks of flats were being built at an alarming pace in order to meet the demand.

Unfortunately, the supply out grew the demand for rental accommodation and many investors found themselves with properties that they were unable to rent out. The value of the properties went down and many were left in negative equity and as they had borrowed up to the hilt in order to fund this venture they were left in financial straits.

For a variety of reasons it is now very hard to borrow money for investments such as this in australia so it a lesson should be learnt elsewhere. As long as the borrower is sensible about the properties that are being financed, there shouldn’t be a problem and as long as a good deal can be made when the properties are purchased such as ensuring built in equity, there will be a buffer in place should the market turn investment loans.