Finance risk while growing a large portfolio

Interesting thread!

Anyone know the policy for extending I/O on the following?
* NAB
* Macquarie
* AMP

Do they need new applications or assessments of serviceability?
 
Interesting thread!

Anyone know the policy for extending I/O on the following?
* NAB
* Macquarie
* AMP

Do they need new applications or assessments of serviceability?

All require full applications. The only lenders (off the top of my head) that may not require full applications are Westpac & CBA. Quite often they also require a full application.
 
All require full applications. The only lenders (off the top of my head) that may not require full applications are Westpac & CBA. Quite often they also require a full application.

Thanks, at least these 3 have the best servicability for me. 4 years to go anyway, and hopefully 4 more pay rises :)
 
So it looks like the best safeguard is really an option for 10-15 years. Which banks offer this? And what are the catches?

Westpac, CBA & ANZ spring to mind.

The catch is they assess your application based on the remaining P&I term after the I/O ends. If you want a 15 year I/O term, your affordability needs to be demonstrated on 15 year P&I repayments. This is a pretty tough call for many people.
 
Westpac, CBA & ANZ spring to mind.

The catch is they assess your application based on the remaining P&I term after the I/O ends. If you want a 15 year I/O term, your affordability needs to be demonstrated on 15 year P&I repayments. This is a pretty tough call for many people.

Jesus, if I had known I would have gotten my first few loans from them before moving onto the others.
 
Hi

Hi All,

This is a great topic and its interesting to see how we all see things differently.
I have always been the type to have all of my investment properties set up as both P and I.

I still managed to pay off my PPOR on my 30th birthday last year lol and have a few investments under my belt which are doing great from two points of view.

1) There all increasing in value :)
2) In the interim all the loans keep going down.

My wife and I do not really spend that much so we have no issue putting extra funds into our investments to reduce the loans.
 
Thanks, at least these 3 have the best servicability for me. 4 years to go anyway, and hopefully 4 more pay rises :)

Not so sure about AMP and serviceability any more danwatto - i just got an email that seems to indicate (haven't confirmed yet by calling my contact) that they won't take mortgage debt held with other institutions at actual repayments anymore. In fact, they'll take it at assessment rate & P&I - which is very conservative.

Quickly turns them from a great serviceability lender to one of the more conservative ones - will be very nasty for any investor with a portfolio looking to do a cash out.

Specific words from the broker email below:

Factoring external debts

Loan repayments for external debts (mortgages, personal loans, overdrafts, margin loans, and line of credit) are to be assessed using the higher of:

- Repayments calculated by using AMP Bank?s loan assessment rate against the total limit of the external debt (on Principal and Interest terms)
- The sum of the borrower(s) declared monthly repayment amounts


In line with this topic - an I/O extension with THIS change to servicing? Given one of AMPs few strong points is servicing, investors using them with other properties are likely to need to have to refinance to extend terms.

No doubt that APRA's behind the change.

Cheers,
Redom
 
That would mean amp r as good as useless now, given that they weren't competitive with interest rates anyway, their favourable serviceability calculator was their only drawcard.
Any word on the other actual payment lenders?
thanks
 
Not so sure about AMP and serviceability any more danwatto - i just got an email that seems to indicate (haven't confirmed yet by calling my contact) that they won't take mortgage debt held with other institutions at actual repayments anymore. In fact, they'll take it at assessment rate & P&I - which is very conservative.

Quickly turns them from a great serviceability lender to one of the more conservative ones - will be very nasty for any investor with a portfolio looking to do a cash out.

Specific words from the broker email below:

Factoring external debts

Loan repayments for external debts (mortgages, personal loans, overdrafts, margin loans, and line of credit) are to be assessed using the higher of:

- Repayments calculated by using AMP Bank?s loan assessment rate against the total limit of the external debt (on Principal and Interest terms)
- The sum of the borrower(s) declared monthly repayment amounts


In line with this topic - an I/O extension with THIS change to servicing? Given one of AMPs few strong points is servicing, investors using them with other properties are likely to need to have to refinance to extend terms.

No doubt that APRA's behind the change.

Cheers,
Redom

My application was only just submitted to them on Monday and have been wondering what the hold up is. Should I be in a mad state of panic right now? How long do these policy changes usually take, effective immediately? I'm stressing out right now...
 
No credit scoring and a fairly reliable DUA.

But servicing of OFI debt thats similar to ANZ/Suncorp/St George, and normal treatment of rental income.

This change will stop a lot/most of the investor activity on their book.

I wonder what will happen to Macquarie over time - they'd have to be carrying a lot of investors activity on their book. Given this change, I'd be putting my money on their calculator changing, especially treatment of their own debt after 6 months.
 
But servicing of OFI debt thats similar to ANZ/Suncorp/St George, and normal treatment of rental income.

AMP will still have their place as Pete alluded to - there aren't many lenders that don't credit score and have a genworth DUA up to 90%

This change to servicing is a bummer though. Guess it goes to show that even with careful planning - there's only so much control you can have. Those that were holding off to use AMP later in the portfolio probably can't now. Hopefully it doesn't extend to the other generous servicing lenders.

Cheers

Jamie
 
From a RISK MANAGEMENT perspective (point of this thread) - as an exercise of stress testing, its worthwhile to see what you may do as an investor in the worst case scenario in terms of changes to lending policy and its impact to investors.

Most investors and homeowners aren't actually exposed to that much risk as they carry a relatively manageable mortgage debt - but the small portion of investors who have large debt holdings are the most exposed. That small portion of investors make up a large portion of the SS community and are growing with the most recent boom driven by investors. These investors typically also hold a fair bit of their portfolio with Macquarie, NAB, AMP, etc - the lenders that will lend most to those who have significant mortgage debt.

Changes to lending policy, as i said originally, is completely outside your control and hence needs appropriate risk management strategies that incorporate the UNCERTAINTY of how this may play out over time.

The fact is, the past is NOT an indicator for the future in this space. Assuming whats happened in the past and you do a simple I/O extension doesn't make sense when your doing risk assessments of your portfolio. A simple refinance to another lender may NOT be on the cards and as easy as it is before. Banks lending policies change, and when the change is forced by the regulator, they typically change in a manner thats likely to affect you rather than assist you.

AMP have just moved from one side of the serviceability spectrum to the other - and for any investor with a few properties that have debt with AMP now, your ability to get an I/O extension is now likely to be a 'no chance'. If you've paid LMI, you're likely to need to move to another bank to extend your I/O term.

For stress testing sake, lets pan out what MAY happen if NAB, Macquarie, ME and a few others that treat OFI debt move in the same way over the next 12-18 months.

In a few years time, investors may be holding seriously large amounts of debt that were previously being repaid by rent given rates are so low and the yield required is very achievable.

Now they're forced to go to P&I. Throw in a normalisation in rates to 3.5-4.5% cash rate (a 6-7% interest rate) and assume rental price inflation is tracking CPI.

Are you still OK in terms of cash flow? I used an example in OP where a portfolios cash flow decreases by 45k and that wasn't include interest rate rises.

I'd suspect most with 4-5 properties and reasonably high LVRs would be forced to deleverage in this scenario. I don't think that'd have a major effect on house prices either (no sharp decline or anything), as the market is reasonably small.

I'm not saying to hold a 1 for 1 buffer in this scenario, as the chances of this playing out are significantly less than 100%. But given whats happening, murmurs in APRA, some of the risks they've talked about and recent shifts in lending policy - the chances of this are a lot more than 1% and hence should be in investors risk assessment framework.

Cheers,
Redom
 
I just talked to my broker and he strongly believes the policy won't apply to applications already submitted even if not approved. He said it would only apply to applications submitted after this notice went out. Any precedents to support this? He calmed my nerves but I'm still nervous as hell.
 
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