80% Funding for Investment Properties & Property Investors Beware
There are a few up and coming things to be aware of if you are a property investor and I thought I would spend a bit of time on it in this newsletter to inform prospective and current investors:
Banks: They are more and more reluctant to extend interest only (i/o) periods. If your i/o period comes to an end, in most instances you will need to do a full application to get it extended. If, for example, your wife does not work anymore due to having a child then the bank might not extend the i/o period. Therefore, it is imperative to stress test your budget to see if you can afford principle and interest payments in the event the bank would not extend your i/o period.
Existing Legislation: Insulation will be compulsory in all rental homes from 1 July 2019. Ceiling and underfloor insulation must be installed, where it is reasonably practicable to install. It must comply with the regulations and be safely installed. Wall insulation is not compulsory. It is prudent to start budgeting for this and, if possible, be ahead of the game. There is almost certainly going to be a rush to get it done leading up to this date, causing prices to rise and a delay in delivery times.
Our New Labour Government intend to:
1. Increase 42 day notice periods for landlords to 90 days to give tenants more time to find somewhere else to live
2. Abolish “no-cause” terminations of tenancies
3. Retain the ability of landlords to get rid of tenants who are in breach of the tenancy agreement with 90 days’ notice, or more quickly by order of the Tenancy Tribunal
4. Limit rent increases to once per year (the law currently limits it to once every six months) and require the formula for rental increases to be specified in the rental agreement
5. Give landlords the ability to agree with tenants on a fixed term lease of 12 months or more, the ability to make minor alterations (like putting up shelves) if they pay double bond and on the basis the property is returned to the state it was in at the start of the tenancy
6. Ban letting fees
7. Require all rentals to be warm, dry, and healthy for families to live in by passing the Healthy Homes Bill
8. Give landlords access to grants of up to $2000 for upgrading insulation and heating.
9. Crack down on housing speculation by extending the bright line test to five years. This taxes the sale of properties in that period other than the family home.
10. Ring-fencing of tax losses for property investors. This will prevent investors from offsetting investment property losses against personal income and will be phased in over five years. For investors who have low yielding (“capital growth”) properties it will reduce the amount of tax they can get back and naturally affect the type of properties they invest in.
I believe we do need to protect the right of tenants and it is disgraceful how some landlords are letting their properties. As with most policies, it has great intentions and hopefully the policies don’t remove too many landlords from the market to leave a void in funding new rental properties for people who cannot afford to buy a house.