The Surf Coast has always been a popular spot for holiday home ownership, but as the township and infrastructure grows, so does the interest in the investment upside.<\/p>\n
Here\u2019s what to watch and consider in the existing environment from a borrowing perspective.<\/p>\n
Interest-only loans<\/strong> Servicing the loan<\/strong> Construction loans and timing<\/strong> If the plan is to stay in an existing property while building, with a view to offloading the current property post
\nInterest-only borrowing has been the subject of a fair bit of media coverage and is in steep decline as a percentage of new
\nloans. It\u2019s always been a popular choice for investors, but the banks have become concerned about the ability for them to be paid back, at some point. Arguably, an investor will simply sell the property for a capital gain, but the banks don\u2019t like being put in a position of forcing anyone out of a property. So new borrowers, or investors rolling off their current interest only terms, must be able to service a full principal and interest repayment schedule. New loans will typically be allowed to pay interest only for either five or 10 years, though.<\/p>\n
\nBecause \u201cserviceability\u201d is the number one focus of lenders now, proof of sufficient sustainable income to cover principal repayments at some point is key. Just don\u2019t forget to include the rental income of the new investment.<\/p>\n
\nIf there\u2019s a period of construction, interest only will be charged during that time and future rental return can be used in determining borrowing capacity. But all incidentals to finalise the property need to be set aside to spend at the end of the build. In managing cashflow, the bank will use deposit funds for the initial stages, and then make payments after satisfactory completion of each contracted progress stage.<\/p>\n
\ncompletion, the bank will generally require the borrower to be able to service the total or \u201cpeak debt\u201d. There\u2019s some bridging or \u201cgo-between\u201d exceptions, but the peak debt Loan to Value Ratio (LVR) will generally need to be under 80 per cent.<\/p>\n