CBA Policy Change - Rental Income

[Brady]

FROM MONDAY 25 NOVEMBER

-The rental income from a residential property used for servicing must not exceed 8% of the Owners Estimated Value or Contract of Sale amount.
This means that we will only accept a maximum gross Rental Yield of 8% for servicing.

- A new Rental Income Referral Rule will apply for Category 3, 4 and 5 applications where the rental income is more than 50% of the total income used for servicing.


For the first one I don't really disagree with it, likely that the bank has some clients that purchased at the peak in mining towns with high rental yield which have now come off and could possibly no longer service the debt.

Second one I don't necessarily think its a good think, but I guess it's only a referral rule which means it needs to be assessed by credit. Which if the application is strong, I can't see it being an issue. Time will tell

 

[DaveM]

Is that 8% before or after the 20% or so rent reduction allowance for costs?

 

[Brady]

Is that 8% before or after the 20% or so rent reduction allowance for costs?

Before. Allowing a maximum of 8% gross yield to be used input as the rental income.

 

[Peter_Tersteeg]

It's really not a big deal. Even the so called, positive cashflow deals I see rarely exceed 8% on purchase price. It's worth being aware of however, because you can run into problems if you underestimate the value of your current portfolio, these properties can be limited to 8% even if there's strong evidence to the contrary.

As for the mining towns returning super high yields, these are clearly highly volatile and should be treated as such by investors. The problem is that greed gets in the way.

What is disappointing however is that the NAB and now CBA are taking a blanket policy to address an isolated problem. There are occasionally solid deals out there that can return over 8%. The CBA doesn't have any postcode restrictions, but perhaps they should put some limitations to enforce prudent lending in risky postcodes.

 

[Rolf Latham]

NAB is 6 % so CBA is generous : )

ta
rolf

 

[RetireRich101]

I think the 8% gross is fair, but 6% is not granny flat/dual income friendly...

 

[Brady]

Like most policies I believe if the deal is still strong enough it will still/can happen.

 

[Corey Batt]

8% is a lot more easier to deal with than 6% for sure.

 

[Aaron_C]

Simple.....boost the estimated amount of value....lol

 

[r3ckless]

Brady. Tell us more info on cat 3/4/5 applicants?

 

[Corey Batt]

Simple.....boost the estimated amount of value....lol

Which would no doubt work in a lot of cases, purchases this causes a bit more problems, or recent purchases it's going to look a tad odd seeing a 30% value increase should they get a whiff.

In any case, 8% doesn't kill a very large segment of the market, where Homeside 's policy causes a lot more difficulty for standard resi securities in a lot of areas.

 

[Aaron_C]

Brady. Tell us more info on cat 3/4/5 applicants?

That's the credit scoring. 1 is a good score, 5 is the worst.

 

[Jamie M]

I'm not too worried about it.

I'm sure it will become a roadblock at some point in the future - but I can't see it being a drama I'll encounter all the time.

Cheers

Jamie

 

[beachgurl]

Is this for applications filed after that date or any deals also in the pipeline? We are tight on servicing and are looking to go with CBA for another loan.

 

[Prop_Perspectiv]

must not exceed 8% of the Owners Estimated Value or Contract of Sale amount.

As in either/or? At the owners discretion?

 

[Rolf Latham]

We are tight on servicing and are looking to go with CBA for another loan.

Why would you do that?

Im all for maxing out the bottom end serviceability lenders etc BUT I recall you have a concentration risk issue already ?

ta
rolf

 

[beachgurl]

Advice from my current broker is that cba are the way to go and that we might struggle to get a loan from other lenders. Perhaps their diamond status is clouding their vision for us? I might get in touch Rolf.

 

[D.T.]

Advice from my current broker is that cba are the way to go and that we might struggle to get a loan from other lenders. Perhaps their diamond status is clouding their vision for us? I might get in touch Rolf.

CBAs calcs were generally on the lower side for me. Your circumstances might be different

 

[Jamie M]

CBAs calcs were generally on the lower side for me. Your circumstances might be different

It's normal for those with a few properties under their belt.

Cheers

Jamie

 

[Peter_Tersteeg]

CBA are generally fairly good, but there are a few lenders who have policies which tend to be more generous to investors with multiple properties. It's fairly consistent with borrowers with 3+ properties.