Everything You Need to Know About NDIS New Lending Rules

NDIS loans are specialised financing options for purchasing or building properties designed for participants in the National Disability Insurance Scheme (NDIS). These properties offer significant financial and ethical opportunities, but recent updates to lending policies have shifted the requirements for investors. Here’s a straightforward overview of what’s changed and how it impacts those considering NDIS loans.

NDIS loans are specialised financing options for purchasing or building properties designed for participants in the National Disability Insurance Scheme (NDIS). These properties offer significant financial and ethical opportunities, but recent updates to lending policies have shifted the requirements for investors. Here’s a straightforward overview of what’s changed and how it impacts those considering NDIS loans.

Read also: Financial Planning for SDA Property Loans

What Are NDIS Loans?

NDIS loans are funding solutions for acquiring or constructing Specialist Disability Accommodation (SDA) properties. These homes are designed to meet the needs of individuals with disabilities, offering accessible living spaces. Investors are attracted to these properties for their high rental yields and the positive social impact they provide. 

Policy Changes Affecting NDIS Loans

Recent updates introduced by key lenders have imposed stricter requirements for NDIS loans, aimed at reducing risks and fostering a more sustainable market.

Portfolio Risk Management

An analysis of past loans shows high risks from poor financial preparation, like low buffers and unrealistic rent expectations. This prompted stricter deposit requirements (20% minimum) and the capping of NDIS loans per investor.

Higher Deposit Requirements

• Previously, investors could secure NDIS loans with a 10% deposit.
• Now, a 20% deposit is mandatory.

This change demands greater financial preparation upfront, ensuring investors have sufficient equity to weather potential risks like vacancies or construction delays.

Postcode Restrictions

Lenders have restricted lending in certain areas to manage oversupply:

• Regional Towns: Properties in towns with fewer than 10,000 residents or more than 25 km from major regional centres are no longer eligible for NDIS loans.
• Oversupplied Areas: Specific postcodes in Melbourne, Adelaide, and Western Australia are excluded.
• Future Review: These restrictions will be reviewed in March to reassess market conditions.

Loan Caps for Investors

• Investors can now hold a maximum of two NDIS loans.
• Only one active construction loan is permitted at any given time.

This policy promotes careful financial planning and reduces the risk of over-leveraging.

Reduced Income Calculations

Lenders now consider only 70% of gross proposed rent for servicing calculations. This conservative approach reflects real-world rental returns, accounting for potential vacancies or unexpected costs.

Mandatory Due Diligence

Investors must now provide:

• A letter from an SDA provider confirming their ability to manage tenanting.
• A letter from a financial planner or accountant outlining the risks associated with the investment.

Impacts on Investors

The stricter requirements have made it more challenging to invest in NDIS property. Investors with strong financial positions or significant liquid assets are now better suited to meet the demands of SDA housing.

For first-time investors, higher deposit and income requirements present significant barriers, especially for those with limited savings or lower incomes. These changes aim to reduce risk but also restrict access for smaller investors.

Read also: What Makes SDA important for Property Investor

Wider Effects

• Restrictions in oversupplied areas aim to stabilise rental demand.
• New rules encourage investors to explore alternative investment strategies, such as properties in less competitive regions or different accommodation types.

Alternative Investment Options

For those unable to meet the updated requirements, there are several alternative approaches to consider:

• Standard Rental Properties: Traditional rentals can help investors build equity and experience while preparing for future opportunities.
• Non-SDA NDIS Homes: Properties rented to NDIS participants without SDA certification offer reliable returns with fewer restrictions.
• Community Housing Options: Short- or medium-term housing for social programmes, such as child protection services, can also provide steady returns.

Why NDIS Loans Still Offer Opportunities

Despite the stricter criteria, NDIS investment remain an appealing choice for investors who meet the qualifications. The financial benefits include attractive rental yields, and these properties contribute to addressing the growing need for accessible housing in Australia. Investors with the financial capacity to participate can gain both strong returns and the satisfaction of making a meaningful impact.

Conclusion

The new policies for NDIS loans are designed to support sustainable investment in NDIS properties by prioritising financially secure investors. While the updated requirements may discourage less sophisticated investors, they provide stability to the market and help reduce the risks of oversupply or underperformance.

If you’re considering an NDIS loan, assess your financial capacity and understand the latest requirements. Consulting with experienced lenders and advisors can help you determine whether this opportunity aligns with your financial goals.