borrowing capacity

[Logan]

Evening ss'ers

I am trying to establish my borrowing capacity in the new lending environment. From what I can work out the new 'standard' calculators used by the big 4 banks assess loans as P & I, 7% and 80% of rents as income. Is this correct ?

I am trying to work out the value of loans I could take out before committing to any further purchases.

Even before the new lending environment hit I was having trouble getting my head around lending criteria, if you only buy neutral or slightly negative geared properties (on paper) then why couldn't you theoretically buy an unlimited number of properties if you had lots of equity? If deposits was the only requirement then equity growth would be self replenishing. How did that particular young guy (no need to mention his name) buy 150 houses so quickly ?

 

[Jess Peletier]

Hi Logan,

You've given us no info to work anything out for you

You're pretty much right re the Big 4 - but CBA assess at actual rate P&I so they're slightly more generous.

You're probably best off hitting up a broker with all your details and plans to see how it can work for you.

 

[Logan]

Hi Logan,

You've given us no info to work anything out for you

You're pretty much right re the Big 4 - but CBA assess at actual rate P&I so they're slightly more generous.

You're probably best off hitting up a broker with all your details and plans to see how it can work for you.

Thanks Jess,

My household income is close to 200K and I have about 360K debt (PPOR) and about 700K equity

 

[Jamie M]

Evening ss'ers

I am trying to establish my borrowing capacity in the new lending environment. From what I can work out the new 'standard' calculators used by the big 4 banks assess loans as P & I, 7% and 80% of rents as income. Is this correct ?

Not quite.

CBA are relatively generous - but that might change.

Nab's changes come into effect this Friday - they don't look too bad (again - that's relatively speaking). They are adding a "loading" to debt held with other banks - but that loading (as far as I know) hasn't been announced yet but I suspect it will be the same as Advantedge who are implementing a loading of 28% of the loan repayment amount (and they won't convert an IO loan to P&I).

WBC no longer allow neg gearing.

ANZ....well they've always been the least generous out of the 4 when it comes to servicing so I can't see them making adjustments.

You don't have to restrict yourself to the majors.

Cheers

Jamie

 

[Logan]

Not quite.

CBA are relatively generous - but that might change.

Nab's changes come into effect this Friday - they don't look too bad (again - that's relatively speaking). They are adding a "loading" to debt held with other banks - but that loading (as far as I know) hasn't been announced yet but I suspect it will be the same as Advantedge who are implementing a loading of 28% of the loan repayment amount (and they won't convert an IO loan to P&I).

WBC no longer allow neg gearing.

ANZ....well they've always been the least generous out of the 4 when it comes to servicing so I can't see them making adjustments.

You don't have to restrict yourself to the majors.

Cheers

Jamie

Thanks Jamie

Do you think it would be realistic to gain finance for $3m property at 5.5% yield based on my numbers ?

 

[Logan]

Thanks Jamie

Do you think it would be realistic to gain finance for $3m property at 5.5% yield based on my numbers ?

just to be clear, it would be more than one property

 

[Rolf Latham]

just to be clear, it would be more than one property

once upon a time.................

ta
rolf

 

[Rixter]

Logan I suggest you approach a MB to run your situation past them and find out your borrowing capacity.

 

[Brady]

Hi Logan,

You've given us no info to work anything out for you

You're pretty much right re the Big 4 - but CBA assess at actual rate P&I so they're slightly more generous.

You're probably best off hitting up a broker with all your details and plans to see how it can work for you.

CBA don't assess at actual. They assess at 7.25% less what discount you're entitled to.

 

[remingbi]

CBA don't assess at actual. They assess at 7.25% less what discount you're entitled to.

i assume that would b for their loans
what about ofi debts. how r they assessed with cba
thanks

 

[Peter_Tersteeg]

Thanks Jamie

Do you think it would be realistic to gain finance for $3m property at 5.5% yield based on my numbers ?

There's still no context to actually assess this on to be able to give you a clear estimate of your borrowing capacity.

Borrowing capacity isn't anything simple and it's not getting easier. Speaking with some lenders today, there's still more changes in lending capacity to come. It's becoming clear that APRA wants all lenders to have pretty much the same servicing calculators, which they want to be pretty lousy for investors.

 

[albanga]

The 150 properties was a long time ago in a very different market. To answer your question though it was achieved using very CF+ properties and a lot of vendor financing. Both those strategies in today's landscape are very hard to implement. Keep in mind if you purchase for CF then you usually forego growth and as such will find it much harder to save for those deposits, even if your on a good income.

Further to that and this would be better explained by a broker on here but different lenders assess debt differently. In terms of rent, many will only take 80%. So whilst YOU may be neutral or positive cashflow in there eyes the property is costing you money. Even as much as $50 per week can quickly dry up your serviceability. Redom a broker on SS wrote a great post on this.

 

[Brady]

i assume that would b for their loans
what about ofi debts. how r they assessed with cba
thanks

OFI actual P&I

 

[Jamie M]

OFI actual P&I

What's the word on the street with CBA and servicing changes Brady?

 

[Brady]

What's the word on the street with CBA and servicing changes Brady?

CBA made some tweaks a little while back before ARPAs clamps with the assessment rate, previously it was 1.5% above actual rate. Whereas now it's 7.25% less discount entitled to.

My understanding is that we first thought we were a bit clear of APRA, but now they have eyes for us and a change within a month could be possible. I really dont think too much will change, well I hope. My thoughts would be 90% LVR max for investors, this makes sense and doesn't really bother me at all. Likely some tweaks to the scoring system being tigher on investors.

CBA has changed it's pricing for investors specifically IO, previously seeing discounts >1% now ~0.80%. Can still arrange loans as P&I and complete a switch at no cost and no assessment after settlement 'if the client changes their mind'...

 

[Peter_Tersteeg]

Of all the lenders I've spoken to so far, they're either already very conservative, or APRA is knocking on their doors. There's been discussions among brokers that there's a few smaller lenders with generous servicing, but they're not going to stay that way much longer.

These days I'm simply not feeling very optimistic about people on modest incomes being able to build massive portfolios in a short period of time in the same manner that people have in the past. People will need to be more creative in generating their cash flow, but still keep it within lender policy which is getting more conservative.

 

[Jamie M]

These days I'm simply not feeling very optimistic about people on modest incomes being able to build massive portfolios in a short period of time in the same manner that people have in the past.

Yep - my thoughts exactly.

Those will be the investors who are hit the hardest. They won't be able to borrow more until income/cashflow improves. If they have a large PPOR debt - that will hurt too.

Gone are the days of high LVR IP loans as well - realistically, it looks like 90% incl of LMI will become the max. Let's just hope they don't become credit scored as harshly as deals above 90% were previously.

Cheers

Jamie

 

[Jamie M]

Can still arrange loans as P&I and complete a switch at no cost and no assessment after settlement 'if the client changes their mind'...

Thanks for the response

Ahhhh - good point re the switch.

Cheers

Jamie

 

[sash]

Cba

The language and flexibility at CBA is non-existent....APRA is now a 1000kg gorilla pounding on their door. The don't want to be like ASIC and be sleep at the wheel like what happened in the CBA financial planning arm.

CBA has an aggressive culture...I have written some posts on this and this affects the behaviour of management which flows onto management. They are also they and WBC are largest lender for residential real estate in Australia. WBC is more conservative...my guess is APRA want to ensure that they don't have too many mortgagee repossesions..particularly from a Big 4.

Here is what will happen from my perspective:

1. CBA will assess scrutinise investment loans and will use 7.5% PI for serviceability.

2. Over time they will disallow negative gearing on Investment loans

3. There will be differentiation interest rates for PI and IO loans as well as PPOR and INV loans.

4. CBA have a certain delegation from Genworth for LMI loans...and they also have their own LMI product. I believe they will tighten this to the point if you do not meet the stock standard lending standards you will be declined.

5. Be very careful of CBA.......and ensure that you never get into to trouble...they will repossess quickly. Do not believe anything they say.....and if you do have issues....ensure that you work the out yourself...do not approach them. See other independent advice....

 

[Logan]

Thanks for the responses I have a broker but he seems pretty busy so I am trying to work out my capacity myself before I commit to any more purchases.