It seems that since the 18th of May 2015, when AMP moved first, the whole world has changed for borrowers in Australia. Prior to and since that date, APRA (Australian Prudential Regulation Authority) have been systematically embedded within many institutions in Australia. The reason for this has been to work out how they could constrain the investment property market which they felt was driving the growth in the housing market.

Some of the actions undertaken have been:

• requiring banks to constrain their investment lending to within a range of only 10% of their book growth per annum. This was the reason AMP pulled out of the investment market so suddenly on 28/7/15, so they could re-calibrate their loan book’s percentages.
• require banks to ‘load’ all other financial institution debt by a buffer, or margin, of 2 - 2.5% on their actual interest rate when determining servicing. (Note banks always load the debt they are assessing for themselves with a buffer to accommodate possible fluctuations in interest rates). This has since morphed into a floor, or serviceability rate, of 7.5%, in most cases with most institutions.
• require banks to focus on a 25yr Principal & Interest (P&i) term over any Interest Only (iO) term in all servicing calculations.
• requiring banks to factor credit card limits into servicing, even if they are paid in full each month.
• encouraging banks to raise their Investment Loan interest rates as new Capital Reserve criteria were applied.

The outcome of these actions, whilst materially affecting the ability of some people to borrow, has had little effect on the overall property market. As many news reports have attested to, prices are still rising. For APRA this has encouraged them to consider what to do next.

The following recent announcements lead me to believe that the next range of changes is just starting:

• Monday 13/2/17 the news feed on ABC 24 announced that Bank West had removed negative gearing benefits from their serviceability calculator.
• With effect from 16/2/17 AMP have reduced the Loan to Valuation Ratio (LVR) on investment loans to 70%

If this does not work what will round three be?

Well, I think that will be the winding back of negative gearing. Labor has already championed this approach by raising it as a policy at the last election. Currently the Liberals have held off and suggest they will retain the status quo. The question is, should negative gearing really be altered? Is it really the culprit? There are many diverse opinions on this. I believe now it is time for me to stick my neck out and let my views be known.

Negative gearing is a taxation benefit that can be used by all Australians. It is a very powerful and relatively easy way to create wealth for the years ahead. As it sits outside of superannuation it enables the individual to take control. In addition, in the process the individual or family learns valuable knowledge about not only the property market but also the financial market as well as gaining some concept of what is needed to sustain them in the future/retirement.

Sadly, like all laws (including tax law) it is abused. Some of the worst abusers are in fact politicians, some having as many as 42 properties (perhaps he is a Douglas Adams fan). This abuse, or should it more accurately be described as greed, is where I believe it breaks down. Rather than do nothing as the Liberals plan or do a lot as Labor plans I feel it should simply be rationalised; something like, limiting it to a maximum of 5 investment properties. Even doing this there will be abusers as there will be some who will buy in trusts, others in companies and then others again who will buy in separate individual names (i.e. husband one property and wife another) to get around such a limit. To truly work this plan would have to have water-tight legislation covering all aspects of ownership and then it would have to be policed. Not like how the Federal Investment Review Board (FIRB) policed foreign investment, by doing nothing! Proper policing of such a policy would enable ordinary Australians to still prepare for their future, non-working/retired life while also keeping a moderate growth impetus on the property market. It should also allow the first home owner back into the market.

 A plan that rationalises negative gearing, rather than scrapping it altogether would mean a wider social and economic line is not created between the haves and the have nots. Where those that got in early, maybe had a family or other educational benefit that put them ahead of the pack, get to keep their properties and those that are just starting out lose the opportunity to build wealth for their future. This is actually what Labor proposes. How is such a change fair? How does such a change bring about a stable inclusive society and economy? It simply does not, all it does is protect a few votes for the politicians.

 In my 18 years in this industry I have assisted many ordinary Australians prepare for their future with the assistance of negative gearing. After all, that is what my business name is all about, futurity’s definition being - the quality of being (think life) in the future. Some examples of what ordinary Australians are capable of are:

Sure the property market’s growth has played a significant part here but still these are examples of how ordinary Australians have prepared for their retirement, independent of a forward reliance on the pension. Should this opportunity be taken away from them? Is excessive greed portrayed here, like the politician who has 42 investment properties? I would say the answer is No!

Enmeshed with this policy a review would have to be undertaken upon the APRA view of P&i loans over iO loans. You see, to obtain the best outcome from negative gearing you need to keep the investment debt figure high. The best way to do this is through an iO facility. In the process you can use the money saved on your investment property repayments (principal) to proactively reduce the debt on your owner occupied property, which is not tax deductible. Paying off non-tax deductible debt before tax deductible debt is a very wise approach as it makes you wealthier, sooner.

 So how can we make this happen? I feel we should talk to our local politicians. Encourage them to think critically about the situation and the possible solutions. There need not be just the Liberal view or the Labor view. If we as a society can work to engage in policy formulation it could lead to a much more beneficial outcome for everyone, rather than a potentially detrimental knee jerk reaction by the elected few.