Andrew Mirams, from Intuitive Finance, says the tighter banking restrictions are even further evidence that cross-collateralisation is a fatal investor mistake. In today’s show he explains how and why it should be fixed.
Kevin: According to our finance expert Andrew Mirams, from Intuitive Finance, now more than ever, with all the tightening of the rules by APRA, it’s more important that you consider whether or not you should have all of your properties cross-collateralized. Andrew joins us.
Andrew, you’re expressing some concern about this, and this is highlighting that?
Andrew: Yes, it is, Kevin. Firstly, thanks for having me.
We’re seeing the constant and ongoing debate about cross-collateralization and things like that. Whereas you have some people advocating it’s okay, we’re certainly an advocate of not having it.
At the moment, with the tightening of the rules, we’ve had a couple of clients contact us – who weren’t original clients – saying, “I’ve got all my loans linked, and my properties are linked at one lender. What can you do for us?”
We’re just finding that when standards tighten and things like that happen, there’s certainly a case that having all your eggs in one basket is not the best thing for us. People need to be aware, and if they do have that situation, they need to start looking at taking some action.
Kevin: What can they do if they are in that situation, Andrew?
Andrew: The first thing is now more than ever, when the rules are tightening and thing are getting harder, is to seek professional advice. Certainly, what we do here at Intuitive Finance is specialize in the investor market. Find someone who can help to review your portfolio and see what you’ve actually got in place. Then from there what can be done, talking about if there are lenders still out there that will give access to funds, and trying to unwind it.
It doesn’t necessarily mean throwing the baby out with the bath water. You don’t have to completely up stumps and move lenders. You can still retain your relationship with your lender. It’s just a restructure within.
There are a few things you need to do, but certainly the first and the most important thing is seeking advice. The problem with seeking advice, Kevin, is when interest rates are low and times are good, people tend to get very complacent. Probably, it’s been still a thing that people haven’t addressed in the good times we’ve just had, but hopefully that won’t leave people short if we’re about to experience a little bit of tougher times with our lenders and APRA and the regulations that they’re wanting to enforce.
Kevin: I guess this is a time to be proactive as opposed to reactive – in other words, not waiting for the banks to come to you, but get on the front foot and do something about it now?
Andrew: No doubt. Absolutely. As with anything, you would much rather be in the driver’s seat than being towed around. I think the more proactive and the sooner you address some of the things if there are some potential issues, the better.
Kevin: One of the things that I wanted to revisit is we did a special video podcast recently, and at the conclusion of that, I asked you how people can make themselves more attractive to the banks. How can we do that?
Andrew: The golden rule there was make sure you don’t cross-collateralize or have your loans linked. The second thing we talked about was making sure you’re seeking professional advice and getting a great team around you.
Make sure you have more than one lender. If you’re a portfolio investor, and you’re starting to grow your portfolio, you don’t necessarily want all to be interlinked all to one bank. It doesn’t even matter if you have all your loans not crossed, but having all your lending at one bank means that they still have the power. In times when it’s a little bit tougher to get access to funds, being an existing customer is a little bit easier than being a new customer.
Certainly, just looking at making sure you have your right debt structures in place. What I mean by that is actually using your equity, making sure – if you’re an investor – you have a line of credit and a buffer set up, so that if things do get a bit tougher and your tenant moves out, you’re not actually having to fund it from your own income, that there are actual structures in place to help you and see you through.
The final thing, I think, is in low interest rates and when things are going well, we still get access to personal debt, credit cards, and personal loans, and in times when you’re looking to access funds, if the credit rules are a little bit tougher, now’s the time to look at eliminating those or certainly reducing them.
Those are a few tips that I think can help people.
Kevin: And very good tips, too. Thanks for your timely warning as well. Andrew Mirams from Intuitive Finance who you can see as a regular contributor on RealEstateTalk.com.au, of course, or through his website, IntuitiveFinance.com.au.
Andrew, once again, thanks for your time.
Andrew: My pleasure, Kevin. Thank you.