Scotiabank has now become one of the last in a long line of big banks that have changed their mortgage rules revolving around the purchase of income properties. And because these changes have made it more difficult for property investors to get a mortgage, they’ve opened the door on opportunity for private investors.
It used to be that purchasers of mortgage investors could claim 70 per cent of the income coming in from that property when they applied for the mortgage for that property. Of course this came into the picture when it was time for the lender to calculate the borrower’s LTV ratio. The greater the income the property was expected to bring in, the more could be borrowed because the better able the borrower would be to pay off that home loan. However, now Scotia – along with most of the other big banks – have changed those rules to limit that LTV to just 50 per cent.
“Scotia made a fairly big change to rental rules,” says Justin Blacklock of TMG The Mortgage Group – Averbach Mortgages. “They used to let us do a 70 per cent offset; now it’s a 50 per cent of the rent off the mortgage.”
This of course, has made it more difficult for those that want to invest in the most secure type of investment vehicle there is – a piece of property. But, it doesn’t have to be that way for them.
“There is an opportunity for a lender to corner the niche market for rental properties,” Blacklock continues.
And he’s certainly not wrong. Just like the tighter mortgage rules that came into effect last July, these tighter rules by traditional lenders only open the door wider for private mortgage investors. By giving borrowers the ability to still use 70 per cent when calculating their LTV, they automatically have a reason to come to you instead of the bigger banks.
Best of all, you don’t have to take on any more risk than you would normally. You can still require a fairly large down payment, and you can still require that borrowers have a good credit score. You can also ensure that the income they are using will still cover their mortgage payments, and you can still charge a hefty interest rate in return for the initial loan. You may not even have to change a thing you’re doing now with the home loans you invest in, but you might attract more business than you once did.
Just like the mortgage rules of last summer opened the door of opportunity for private investors, now this change that the banks have made have opened that door even further.