My discussions with banks have revealed some quite large towns (with high yield property) where banks will not lend more than 70% without borrowers taking out mortgage insurance.
This seems to indicate that the banks think that these areas are too volatile or risky to lend 80%.
Does anyone know how the banks make these assessments, and whether the banks’ judgement should put anyone off?
Peter
Hi Peter.
Banks look at the area that a property is in, that is whether it is in a rural area or not. I think their way of thinking is that any down turn in the property market is going to affect the rural areas first because of their lack of population growth. I don’t see this as a deterrant, because if you are after poritive cash flow the real asset is the tennant not the property, so you shouldn’t really care if the property price drops slightly. Banks on the other hand care because if you can’t meet your repayments, they need to be able to recoup their money from selling the property. If the property is in a rural area and property prices go down, their way of thinking is that they won’t be able to get their money back on it.
As Steve has said many times on this forum, he doesn’t really care if the propoerty he buys is in a growth area or not, he is more concerned with being able to rent it out for long periods of time. Thats the strategy if you are after positive cash flow.
Areas like these are often more open to vendor finance, too as everyone in the area has the same “problem”. Why not try negotiating something along the lines of “I’ll give you full price if you hold 30% at 5%”. You get a lower rate than the banks will give you, fixed, 100% financed (with 70% from the bank) and the owner gets a higher rate than if they put their money in the bank…
Worth a try! [
]Quasimodo
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We are all but half formed images of our true potential.
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