It has been many years since I obtained an investment property loan.
I still recall getting a loan from one of the big 4 banks circa 20 years ago.
I was then, as I remain, essentially self-employed. This meant a low-doc loan, which sounded a little scary at the time.
However, this was surprisingly simple. The bank manager, who came to my office to get the loan documents signed, said that to afford this loan, I need to earn a certain figure per annum. He then said sign here to confirm that you do. That is, I got to self-certify my income.
This seemed surprisingly easy at the time – and with the benefit of hindsight was too good to last.
Fast forward to 2025 and I was again seeking an investment property loan. All I can say is that the world has changed significantly.
When I started my search for an investment property loan – 80% of an inner city apartment – I thought it would be straightforward. After all, I thought I had a solid income and sufficient assets that this wouldn’t be a problem.
That was my first mistake. After factoring in my home loan and a commercial property loan my long-term banker advised me that he was unable to offer me a loan on the property – or any loan at all. Serviceability was calculated on a near 10% interest rate and my commercial loan (being a shorter-term loan) has high principal payments which also adversely affected my serviceability.
This left me looking at a low-doc loan again. After my last experience, I thought this would be straightforward. Wrong again.
The major banks don’t seem to offer low-doc loans anymore. This means a non-bank lender. That also means significant loan application and other fees.
Low-doc loans now come with a much more rigorous due diligence process. This includes tax returns, a letter from my accountant to confirm that my SMSF trustee company (of which I am a director) wasn’t a financial drain on my resources and all sorts of other requirements.
This then leads me to the real point of this article.
Twenty years of consumer protection ‘improvements’ have meant that:
- Traditional banks are an ever-decreasing share of the property mortgage market. Given that the Banks are subject to the Banking Code of Conduct (as well as other regulations) and non-bank lenders are not (subject to the Code of Conduct) this doesn’t feel like an improvement in protection;
- Non-bank lenders are more expensive – in terms of both interest rates and fees; and
- Loans are harder to get. That is to say that my low-doc loan fees are more like a full document loan! This limits the ability of borrowers to obtain funding for (hopefully) productive activities that fuel economic growth.
Overall, I think it’s time that we stood back and thought about whether ‘consumer protection’ is working and the price that we as a society pay for these ‘enhanced protections’.
In the meantime, the trend towards non-bank lenders makes it more important than ever that borrowers understand the terms and fees set out in their loan documents.
As always, Lewis O’Brien & Associates stands ready to assist with advice in relation to letters of offer and / or providing solicitor’s certificates to borrowers. If we can be of assistance please contact us.
The most ridiculous thing…
This week features extracts from another restrictive covenant on a property being purchased by a client. The restrictions include not building a privy (being an outhouse / exterior toilet) in a conspicuous place on the property or using it as a picnic park. Not really sure what the vendor was thinking here?
Next Time
I’ve been working with a client on the purchase of a number of commercial properties. Next time I want to explore some key differences in the process of buying a commercial property compared to a residential property.
Lewis O’Brien
Your Preferred Property Lawyer