bank's assessment on rent and interest rate

[kero]

can't remember if this a norm.

spoke to an ANZ broker yesterday and the lender is assessing only 80% of my rental income and their safety net for interest is +2%!!!! still need to cough up with 5% deposit of cost but that's not an issue for me.

goodness gracious, that'll take another few years before i can buy another IP.

so, is that always the case? any other banks or lenders less strict?

help appreciated.

 

[Aaron_C]

Bah an ANZ 'broker' - more like an ANZ loan officer - but I digress.

For most lenders they only assess 80% of your rental because they assume 20% of the rental goes to outgoings like property management fees, maintenance, vacancies etc. I think it is a fair enough number.

The safety net is 2% above the rate for ANZ because they are a conservative lender. If you won't service on ANZ it is likely you will service on other lenders who are far more generous especially when lots of rental income is involved. Some lenders also assess your loan on the fixed rate itself (which are lower than variable now) which can aid with servicing if things are tight in that area.

The main issue you will find as you go forward is how the lender will treat your existing loans with other lenders. Some (like ANZ, ING etc) assume you are paying much more than the actual repayments, which quickly kills your servicing stone dead.

 

[Jamie M]

can't remember if this a norm.

spoke to an ANZ broker yesterday and the lender is assessing only 80% of my rental income and their safety net for interest is +2%!!!! still need to cough up with 5% deposit of cost but that's not an issue for me.

goodness gracious, that'll take another few years before i can buy another IP.

so, is that always the case? any other banks or lenders less strict?

help appreciated.

ANZ's servicing is ok if you're just purchasing the one property and don't have IPs.

The assessment rate and repayments taken at P&I for existing liabilities is what kills it for investors.

They can be ok to start with - whilst keeping the more generous lenders (when it comes to servicing) until later on (such as those that take into account the repayment on existing liabilities at what they actually are - rather than an inflated amount).

Cheers

Jamie

 

[DaveM]

What I see as strange is that lenders take 20% of rent for mgmt fee, rates, strata etc... and then also factor these figures in again for servicing on top of the 20%.

 

[Rolf Latham]

goodness gracious, that'll take another few years before i can buy another IP.

clearly your next IP challenge isnt one due to serviceability, more equity bound that income bound from what u are saying ?

ta
rolf

 

[Rolf Latham]

goodness gracious, that'll take another few years before i can buy another IP.

clearly your next IP challenge isnt one due to serviceability, more equity bound that income bound from what u are saying ?

ta
rolf

 

[Peter_Tersteeg]

What I see as strange is that lenders take 20% of rent for mgmt fee, rates, strata etc... and then also factor these figures in again for servicing on top of the 20%.

They only take property holding costs into account via the 20%, they don't double dip as you're suggesting.

The 2% buffer that lenders put on interest rates for existing loans is to accommodate future increases in rates. Rates may be around 5% now, but the long term average is about 7% and it wasn't that long ago that they were over 9%.

Not all lenders have the same policies on rental income and assessment rates. A rare few will take 100% of the rental income, but don't give you negative gearing benefits. Some will take the actual loan repayment for existing loans under certain circumstances.

Lenders also assess various types of income (overtime, bonus, leave loading, etc) differently.

The result of these differences in various policies is that from one person to the next the affordability calculations can change dramatically. We often see situations where some lenders won't give you a cent whilst others will literally throw millions at you.

A good finance strategy will examine various elements like this to help serious investors buy multiple properties. It's often a balance between being able to continue to borrow, getting the best rates, being able to access equity, etc. All are important, but certainly rate becomes less of a factor for lenders who'll give money under favorable terms.

 

[nhg]

I am not sure about the serviceability side of things,

However I feel they seem to be getting stricter with valuations and re-financing. Just had my renovated 3 bedroom brick home with sleep out on a 700sqm block valued $20k under an old 3 bedroom fibro house across the road. The other comparables were old brick houses on 500sqm blocks.

I am confident I could sell it for at least $40k more than what they are suggesting no sweat. Then again, I am not lending me money, so doubt I’ll be able to change their minds.

 

[fullylucky]

can't remember if this a norm.

spoke to an ANZ broker yesterday and the lender is assessing only 80% of my rental income and their safety net for interest is +2%!!!! still need to cough up with 5% deposit of cost but that's not an issue for me.

goodness gracious, that'll take another few years before i can buy another IP.

so, is that always the case? any other banks or lenders less strict?

help appreciated.

80% of rent is normal because they can't just take your word for it it will be tenanted out every single day of the year. You have to subtract costs like repairs and management fees.

 

[Robstar]

80% of rent is normal because they can't just take your word for it it will be tenanted out every single day of the year. You have to subtract costs like repairs and management fees.

& I assume they want their own little buffer too?

 

[kero]

so after some consideration, we may still go with anz but this time with the deposit without cross coll.

question to the floor is, without cross coll with the same lender, will any defaults on my currents IPs affect the new IPs as this is the same lender?

thanks

 

[Rolf Latham]

so after some consideration, we may still go with anz but this time with the deposit without cross coll.

question to the floor is, without cross coll with the same lender, will any defaults on my currents IPs affect the new IPs as this is the same lender?

thanks

significant default, to the extent of judgement will take you out even if you have props with lender x that are well in order.

Having the spread woth other lenders can and does buy you time, but it wont provide protection you are seeking

ta

rolf

 

[kero]

Thanks Rolf,

So it sounds like unless I structure it in a trust or something similar, no matter who I borrow from, I m still quite expose yah?