Changes / tightening on servicing for investors

That article doesn't really have anything to do with recent policy changes towards investors. It's always been a bit tricky to have income recognised during maternity leave. Let's face it, a lot of women don't return to work after having children. There is an inherent risk for banks to offer finance on the promise that they will. Easier to decline a loan than to reposes a house from family with an infant.

Lenders became more strict on verifying affordability after the GFC. In the past people have claimed they were offered loans they couldn't afford and 'responsible lending' legislation was put in place to protect people from taking loans they can't afford. A logical conclusion of this is to not consider income that doesn't currently exist (such as returning to a job you're not currently working in).

All that said, most women under financial pressure do tend to return to work if that's what it takes to make ends meet. There are quite a few lenders who will recognise maternity leave.


Thank you Peter for the information :)
 
with all these tightening measures, out of the big 4 and other smaller banks, are they all the same or r there some more generous in the servicing calculators
thanks
 
with all these tightening measures, out of the big 4 and other smaller banks, are they all the same or r there some more generous in the servicing calculators
thanks

There are still large variations in serviceability between the lenders, and still lenders which will take external debts at their actual rate (primary servicing booster) among other policies. The number of these lenders *have* decreased and are no longer necessarily the 'mainstream' lenders - so it's even more important now to ensure you utilise an investment focused lending strategy now to ensure you can meet your longer term goals.
 
with all these tightening measures, out of the big 4 and other smaller banks, are they all the same or r there some more generous in the servicing calculators
thanks

There are still some more generous than others - Adelaide, Firstmac, TMB and Me bank are all still pretty good BUT they all have their quirks so best to speak to someone before rushing in - for eg, ME have a 1 month turn around time at the moment, which might be tolerable for a refi but not ideal when you've got a finance expiry looming.
 
thanks corey and jess
with the big 4, would cba now be the most generous on their servicibitlty calculators followed by anz
haven't heard much from cba or anz?
i know west pac removed negative gearing and nab has started to use buffers on ofi debt
For a ppor loan +cash out, is there one of these bks that would b more generous in servicing

Many thanks
 
Forget the Big 4 if you are looking for a generous calculator. APRA has taken it's heel and planted it firmly on their necks. Mere mortal investors without superpower incomes capable of leaping 7-8% assessment rates on all borrowings need to learn names like Firstmac and Adelaide Bank now, or find something else to do, because whether capacity is already exhausted or about to be exhausted, you will not go very far using the majors from now on.

http://somersoft.com/forums/showthread.php?p=1309847#post1309847
 
thanks euro.
Esp for all your detailed previous responses in the past to my questions
I will need to use firstmac and adelaide very soon
I just wanted to refinance ppor and possibly 1 ip with cash out next mth, if i still can service it, b4 going down that journey
amp, nab and macquarie were to be planned to be used before these, but as they have all been knocked out, i suppose its then time for adelaide and firstmac, and then who knows, any other non conforming lenders after that
My only Q, would u use firstmac b4 adelaide or vice versa.

thanks
 
Forget the Big 4 if you are looking for a generous calculator. APRA has taken it's heel and planted it firmly on their necks. Mere mortal investors without superpower incomes capable of leaping 7-8% assessment rates on all borrowings need to learn names like Firstmac and Adelaide Bank now, or find something else to do, because whether capacity is already exhausted or about to be exhausted, you will not go very far using the majors from now on.

http://somersoft.com/forums/showthread.php?p=1309847#post1309847

CBA assessment rate still 7.25% less discount entitled to at this stage. So more like 6-6.5%
 
Ok, so CBA is the lesser of the 4 evils :) But still well off the pace in the new lending landscape. I'll give you an example - FM and ABL will currently take actuals on OFI debt . Lets say you have $2 Million @ 4.2% and it is assessed that way vs CBA assessing the same $2 Million @ low-mid 6%'s. That 2% -2.5% (ish) difference on $2 Million takes at least 40K -50K of "useable" income away from me right away.

In addition, FM and ABL ( through mortgage managers) also allow the use of 80% of the NRAS credit as tax free income. So for those who are out of puff , with substantial equity and want to keep investing and can find good NRAS stock to invest in, that provides for an additional $8733.60 of tax free income to be used for servicing ( based on the current $10,917 value of NRAS) per property. Net result = Borrowing capacity increases with each new NRAS deal. That means $2 Million of additional lending available from each of them. $4 million in total, potentially. And you wont be able to get that anywhere else or using any other strategy, no matter how clever you are.

For those not interested in NRAS, you can still get tremendous value out of the FM and ABL calcs anyway, but you will get far more value from the calcs by utilising NRAS.
 
CBA assessment rate still 7.25% less discount entitled to at this stage. So more like 6-6.5%

Hi brady. "less discount entitled to at this stage" what is that referring to
is the discount off svr you get on ur loan, so that if i was given 1% off svr, then the assessment rate is 6.25%
thanks
 
euro the logical conclusion of what you're saying is that from here every investor that's just been cut off by the first tier lenders now looks to FM, ADL and a handful of mortgage managers. This could substantially increase their market share, especially in the investment space.

What have the regulators been saying to these lenders? How will they respond?

So far we've heard very little from the second and third tier lenders, yet they're deploying very aggressive lending policies by todays standards. At some point they are likely to become a target.
 
Hi brady. "less discount entitled to at this stage" what is that referring to
is the discount off svr you get on ur loan, so that if i was given 1% off svr, then the assessment rate is 6.25%
thanks

Your calculations are spot on.

At this stage because CBA is now the front runner across the majors in a lot of people's eyes, which will likely come with increased activity. This activity could and likely will attract the attention on APRA if the bank doesn't act first. My understand is that CBA was out of the eyes of APRA but is now drawing closer.

Pete's post relates to this.

I think 90% will be the new norm for investors, which frankly doesn't change too much. For those that are lending at actuals enjoy it while it lasts, don't see it lasting long. Their book will be filled in no time, then what... Overloaded and shutdown to 80% as waited too long?
 
thanks brady
1.r cba offering anymore than 1.25 off svr for ppor for large loans with cash out for e.g2.5mill loan
b/c if they were then the assessment rate falls below 6% and becomes even more attractive relative to other majors
2. does cba allow more than 1 valuation per yr if the customer believes the val has gone up significantly in a few mths
3. i would imagine with a more favourable assessment rate than the other three majors, there will be a flood of ppor and investors with 1 IP using cba now
is cba looking to change this assessment rate anytime in the next few mths and
do they assess ofi debt at the same assessment rate?
4. finally will they give the same IR for the IP and PPOR if they r jointly held by cba

thanks in advance, sorry for all the questions
 
What have the regulators been saying to these lenders? How will they respond?

So far we've heard very little from the second and third tier lenders, yet they're deploying very aggressive lending policies by todays standards. At some point they are likely to become a target.
They need to be regulated hard as soon as possible. This is what party happened in Spain, although the major banks were well regulated and among the most prudent in Europe (lesser so at the peak of the bubble) they were sideswiped by the smaller regional banks which were funded from abroad (eg by Germany), these funds helping drive the property bubble to extreme levels.
 
euro the logical conclusion of what you're saying is that from here every investor that's just been cut off by the first tier lenders now looks to FM, ADL and a handful of mortgage managers. This could substantially increase their market share, especially in the investment space.

What have the regulators been saying to these lenders? How will they respond?

So far we've heard very little from the second and third tier lenders, yet they're deploying very aggressive lending policies by todays standards. At some point they are likely to become a target.

I think the 2nd tier and non banks have such small market share that even if it tripled tomorrow, it would still be an insignificant percentage of the market.

In the end, if brokers and customers do divert business towards the 2nd tiers and non banks it's probable they will raise APRA's eyebrows in time and may have some constraints forced upon them, but lets all remember what APRA is specifically trying to achieve. It wants a dramatic reduction in I/O debt , as they see it as systemic risk to the banking sector. Had banks kept year on year growth for I/O debt below 10% as APRA had repeatedly requested, APRA would quite likely not have intervened. It is not specifically house prices that APRA is concerned by, because only Sydney and some parts of Melbourne are priced speculatively. It is the systemic risk from I/O loans more broadly that is their target. They have said as much, more than once. If they wanted borrowing capacity specifically curtailed across the board, all lenders would have been forced to act simultaneously to reduce capacity.

Take Adelaide Bank for example. If their book is primarily P & I (and I dont know whether it is) APRA may be happy for them to see a 10% increase in I/O business. Same for FM or ME Bank or others who may now offer the more competitive borrowing capacity.

I think you'll also see banks create incentives for Variable P & I to be the preferred choice of product, as time passes. Pricing differentials are already evolving between P &I and I/O, and will probably continue to evolve. For example, banks may choose to pass on the next 25 bpts to P&I loans and not to I/O loans. Fixed rates ( where extra repayments are limited) are also being increased by many lenders even when we know funding costs arent increasing. As fixed rates allow limited extra repayments, this may also be part of many banks strategies to satisfy APRA's wishes that they start to see some de-leveraging of their books.

But in the end, whether there are further interventions from APRA is anyones guess.
 
They need to be regulated hard as soon as possible. This is what party happened in Spain, although the major banks were well regulated and among the most prudent in Europe (lesser so at the peak of the bubble) they were sideswiped by the smaller regional banks which were funded from abroad (eg by Germany), these funds helping drive the property bubble to extreme levels.

Most the 2nd tier and non banks are already quite conservative, policy wise. They may offer good borrowing capacity, but they still only do vanilla, full doc business. Just try writing a deal with any hairs on it at all, with Firstmac for example. Squeaky clean, vanilla stuff only. No in house sign off. LMI policy is applied rigorously, and exposure per borrower is capped at $2Million. They will be a solution for many, but they wont provide a free for all haven for all comers.
 
Squeaky clean, vanilla stuff only. No in house sign off. LMI policy is applied rigorously, and exposure per borrower is capped at $2Million.

My understanding is FM are a fully securetised lender. Do they have in house LMI sign off below 80% LVR?

It's great to have a good servicing calculator, but kind of pointless if a mortgage insurer is going to cut you off at the knees.
 
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