Episode Details

Over the past couple of years there have been many changes that have dramatically reduced your borrowing capacity. The Financial Services Royal Commission, government has put pressure on the banks to reduce investment lending and a directive to tighten lending standards just to name a few. If you are unable to borrow then your only alternative is to invest your after-tax income/savings… and that is a much slower path to wealth.

But don’t despair. You can still leverage your assets and income to build wealth. It’s just that some of the rules have changed.

Gone are the days when clients would buy an investment property on the weekend and ring us on Monday requesting us to organise a new loan. It just too risky to do that these days (then again, arguably, it’s always been too risky). It is important to plan ahead as credit is much tighter these days and credit polices are changing regularly. This will help you project your future borrowing requirements thereby allowing your mortgage broker and you to work out the best time to make any required applications. You must be more strategic.

In a constantly changing credit market it becomes even more critical to maximise your borrowable equity. Borrowable equity is the amount of unused loan facilities that you have access to. Maximising your borrowable equity requires you to proactively increase your credit limits to 80% of your property/s current market value.

The three common benefits of maximising your borrowable equity include:

(1) To fund future investment(s) and/or other uses such as home upgrade, renovation, etc.

(2) To maximise your loan buffers in case of any unforeseen changes or expenses – the more access to credit you have, the lower your overall risk as you have adequate financial resources to weather most storms.

(3) In case your borrowing capacity changes in the future e.g. start a family and go down to one income, change employment, move overseas, property values decrease, credit policy changes, etc. We never know what is around the corner.

Watch this 5 minute video that I recorded last year to learn more.

Building wealth is more of a marathon than it is a sprint. Becoming financially independent takes time. And in an environment where money is more difficult to borrow, it becomes more difficult to be able to “catch up” i.e. if you are starting your wealth journey a little later in life. Therefore, do your best to avoid procrastinating. The best time to start investing was yesterday. The second-best time is today.

There are usually three ‘windows of opportunity’ in most people’s lives when building wealth is the easiest:

If you are in one of these ‘windows’, it might be prudent to make the most of it before the window closes.

If we agree that everyone’s borrowing capaci<