Another Lodoc lender tightens the noose

[Token Funder]

Token Funder no need to,you have been telling everyone in the site for a while now but my question is what's next to happen in the Money Lenders world,finance can only tighten up so much,the property buying machine
and all that work under that banner is still in full swing,talk to any agent now is the time to buy,my old economic clock tells me different the next stage of the cycle with be rising share prices,what do you think as you have your fingers on more info that normal front bar drinkers like me can ever get thier hands on..imho..willair..

We've seen the first signs of life in the "real" securitisation market. Not with terms that make economic sense but it's been a long time since we've seen even had a pulse, so it's noteworthy. So, funding is still expensive and increasingly dependent on domestic deposit raising...have a look at three year term deposit rates to get an idea of what money is costing.

The Feds are still worried about diminished competition but the obvious solutions to fix the imbalance being perpetuated by the govt. guarantee seems to be stuck in the committee process.

Notwithstanding the fairly overt stuff around Lo Doc rules, LVRs, credit policy, most credit tightening continues to be in the black boxes (credit scoring engines, risk bands, serviceability calculators). I'd be interested to know how many brokers on this site were actually informed of the reduction in borrowing "power" that has been slipping though the system the last 3-4 months. It will continue along that vein for a while yet, with the odd highly publicised "improvement" in product/credit to keep people distracted.

Finally, I suspect you will see further conservatism driven by the new comsumer lending legislation hitting in 2010, particularly in light of the fact that mortgage brokers will be putting their licence (and livelihood) at risk from July if they engage in some of practices fairly common in today's market. For example, certain un-named broker/advisors who have happily and knowingly allowed their clients to consider equity/CG as income would have ASIC inviting them to consider a different industry from next year.

 

[Ausprop]

equity/CG is income... you shouldn't have to realise it to prove that

 

[Rolf Latham]

heheheh

Hey Mr Ato..............CGT is a figment of your imagination. A P&L does not a business make, in fact it can be extremely misleading ( Keith Cunningham)

LOE didnt work for Centro either long term, made for an income stable platform for a long time, but you can only eat your bricks for so long.

Im still finding the scoring systems ok, even though there is a bit of fiddling going on here and there,and yes there is a progressive redn in borrrow capover the last few months, more accelerated in the last 4 weeks or so with some substantial variations in either plug rates or PI over IO assessment.

The biggest redn in real terms is probably worstpac with an average redn of 28 % on an IO loan compared to say a month ago

ta
rolf

 

[Ausprop]

hey there was a time when the ATO didn't consider CG as income! the biggest loop hole we have is that unrealised gains aren't assessed... would be a shame if banks made us turn assets over just to prove a point. but then the ATO will love it, the stamps offices will love it - banks and govt hand in hand, aint that grand!

 

[Spectre]

Remember your Kiyosaki - tax brought in initially on the wealthy in the US... but the wealthy knew how to avoid it, so it seeps to the middle and lower classes...

 

[Kristine..]

... I'd be interested to know how many brokers on this site were actually informed of the reduction in borrowing "power" that has been slipping though the system the last 3-4 months. ....

Yeah, TK, the change over from 30th June to 1st July 'cost' a customer of mine nearly $50K in borrowing capacity, which meant a fairly expensive refinance for them from that lender (which Bank?) with whom they had been for nearly five years, to another lender which just, but only just, was able to provide the funds, and as they were selling that house to buy the new house but they had signed a contract for settlement prior to signing a contract for sale .... that reduction in servicability ended up costing them about $9,000 in real money

What a difference a day makes!

cheers
Kristine

 

[Rolf Latham]

yeah Ausprop, no CGT pre 1985............but that was like last millenium

That was even pre GST daze

ta
rolf

 

[willair]

. For example, certain un-named broker/advisors who have happily and knowingly allowed their clients to consider equity/CG as income would have ASIC inviting them to consider a different industry from next year.

Thanks,2010-2011 looks like they will be interesting years,one wonders how far the MB industry will tighten up,and who will be left in control in the end,my sister in law lives in San Jose she was working 2-3 days a week,talked to her the other night she is back to working 5 days now not that means anything and she is a Dentist so from the the top end too the bottom they have all had a change of mindset over there,but in time greed always overtakes fear when it's "OPM"..imho willair..

 

[redwing]

In the blurb from ZHENG he also offered this?

As Rolf mentions I can't see it helping with the current lender myself?

They already factor in 2% additional don't they on the rates when assessing serviceability and saying something one month re your income (lo-doc) and possibly a changed scenario some months/yrs later (full-doc) may raise an eyebrow or two?

There is always a bright side of everything, if low-doc loans are on the way out (at least high LVR ones), lenders will make an effort to help the low-doc borrowers to convert their loans into full-doc loans, as it will be good for their loan book, and it is definitely good for you.

While we can’t guarantee that we can definitely convert your low-doc loans into full-doc loans, we have been working very closely with some lenders to help make this conversion possible for our clients. Right now the interest rates between full-doc and low-doc are very similar; many low-doc borrowers do not see the need to convert their loans. But this won’t last very long; in the long run the low-doc loan interest rate will always be much higher than the same full-doc loan, when it does become higher, it will be much harder to switch over. Hence this is probably the best time to make a switch from low-doc to full-doc if you can.

 

[steveadl]

I can see some who were looking at property investment with lo doc loans investing in the sharemarket instead (and using the leverage from margin loans). May result in increased demand for shares.

I understand there are moves to tighten up margin lending as well (something about know your client requirements). As of today I can get 90% lvr on BHP on margin loan (no questions asked).

I've been doing similar.

Nice, who's giving you 90% on BHP? I only get 75% (80% if you want to count the buffer before a call).

 

[Ajax]

steveadl,

Maquarie Prime do 90% lvr on BHP.

We could have a similar thing happening as with LOE on property with margin loans used to draw cash out from growth assets (shares) without realising the asset. There are probably many successful share investors who already operate this way.

Have seen a personal tax return from a South African immigration client where a balance sheeet was required each year together with a statement of income and expenses. Not sure if the balance sheet needed to show assets marked to market (current valuations) or at cost. If marked to market/current valuations were required this could provide a means for taxing unrealised capital gains.


Ajax

 

[craigb]

i did not even know SGB did lo doc, i thought it was RESI, any ways, i have been getting some awfull ATO letters of late my tax pro says alot have gone to alot of their clients, they think the coppers are empty and need their own financing, lol. she said don't worry about it, as its almost up to date,

 

[steveadl]

steveadl,

Maquarie Prime do 90% lvr on BHP.

We could have a similar thing happening as with LOE on property with margin loans used to draw cash out from growth assets (shares) without realising the asset. There are probably many successful share investors who already operate this way.

Have seen a personal tax return from a South African immigration client where a balance sheeet was required each year together with a statement of income and expenses. Not sure if the balance sheet needed to show assets marked to market (current valuations) or at cost. If marked to market/current valuations were required this could provide a means for taxing unrealised capital gains.


Ajax

Jeez and here I am stuck on 75% with ComSec like a sucker!

Drawing cash out of the margin loan would definitely be an option to release equity Ajax, but wouldn't doing it this way result in your margin loan becoming contaminated with deductible and non deductible debt if the funds were for LOE as opposed to another investment?

 

[Ajax]

Hi Steve,

that's a good question.

Assuming you bought BHP shares at 90% lvr (and BHP is trading at $40).

At time of purchase you deposit $80,000 into the margin account and buy $800,000 worth of BHP (i.e. 20,000 shares).

BHP shareprice increases over one year to $50.00. Your 2,000 BHP shares are now worth $1,000,000.

The $200,000 increase in equity would enable you to withdraw an additional $20,000 from your margin loan without going over 90% lvr.

Is the $20,000 that you withdraw coming from equity?

Maybe it depends on the specific wording of the margin loan agreement.

You could be correct though. The funds withdrawn might be viewed as an increase in margin loan and ato may look to the use those funds were put to to assess deductibility of interest.

Maybe the solution is to only purchase high yielding shares with fully franked dividends. I recently read that Tattersalls are yielding over 9% pa fully franked. Macquarie Prime will do 82.5% lvr loan on TTS.

Reworking my example (for my benefit as well)

Use $80,000 to buy TTS on margin. This is approximately $450,000 of TTS shares.

(180,000 TTS shares)

With a 9% fully franked dividend this is $40,500 pa tax free. Need to take into account interest on margin loan (interest on borrowings of $370,000)

 

[steveadl]

Hi Steve,

that's a good question.

Assuming you bought BHP shares at 90% lvr (and BHP is trading at $40).

At time of purchase you deposit $80,000 into the margin account and buy $800,000 worth of BHP (i.e. 20,000 shares).

BHP shareprice increases over one year to $50.00. Your 2,000 BHP shares are now worth $1,000,000.

The $200,000 increase in equity would enable you to withdraw an additional $20,000 from your margin loan without going over 90% lvr.

Is the $20,000 that you withdraw coming from equity?

Maybe it depends on the specific wording of the margin loan agreement.

You could be correct though. The funds withdrawn might be viewed as an increase in margin loan and ato would merely look to the use those funds were put to to assess deductibility of interest.

Maybe the solution is to only purchase high yielding shares with fully franked dividends. I recently read that Tattersalls are yielding over 9% pa fully franked. Macquarie Prime will do 82.5% lvr loan on TTS.

Reworking my example (for my benefit as well)

Use $80,000 to buy TTS on margin. This is approximately $450,000 of TTS shares.

(180,000 TTS shares)

With a 9% fully franked dividend this is $40,500 pa tax free. Need to take into account interest on margin loan (interest on borrowings of $370,000)

Yeah there's no problem with withdrawing the $20k from the margin loan - just increases the loan liability and interest payment. Macquarie don't care what you do with it.

But if you don't buy an investment with the $20k, your margin loan now consists of $740k: $720k deductible, $20k non deductible.

It can obviously still be attributed, but you'd have to keep on top of it for the ATO and could become increasingly painful to track.

The high yielding shares are tempting (eg. TTS, TLS, TAH etc) but I'm not comfortable with them ie. business prospects etc. There's always a reason the dividend yield is so high, eg. TLS with the regulation uncertainty, TTS & TAH with the loss of their pokie duopoly etc. I'd rather buy stocks on lower yields eg 3-7% but with good business growth prospects of 10-20%pa. Dividends will catch up soon enough at these growth rates and cap growth will be better.