How to increase one's serviceablity via property acquisition

[sash]

You are a mortgage broker who gets it.

If you're buying at 90% LVR's min and 8%+ yields your serviceability will slightly degrade with the conservative (rate stacking) lenders per purchase, whilst the actual repayment lenders will creep up in serviceability. You won't be increasing your serviceability at purchase, but you will be able to substantially extend your borrowing capacity beyond 'normal' limits with ~5% yields.

Not many people are using 10%+ CASH deposits and buying 8%+ yield purchases though.

8%+ doesn't have to be high risk at least, compared to 12%+ yields (for resi).

Nope.....Cash is king....bankers see your risk profile and will fall over themselves trying to get your business and chasing the dream that one day all my loans will come their way. Unfortunately...it never happens with me...once I hit over $1m on loans with one bank...I make like a bakery truck and haul buns.

Sash it is just a waste of money having money sitting in a bank, you are better to buy shares in the bank, they yield more, get CG, count as assets, are liquid and the income improves serviceability, diversifies.

 

[tobe]

What Sash thinks his credit assessor looks at = goodness, look at all of the pretty pictures and graphs sash has included in his loan submission, Im going to spend 60 minutes looking through his submission now, even though I am only allowed 20 minutes for each application or my boss gets mad and makes me work late.

Goodness, $800,000 in his offset account, he must be really good with money. Even though it is illegal under the new asic rules, and I will lose my job, Im so impressed, Im going to approve his loan for more money anyway, and just assess on the balance, not the total of the loan.

What Sashs credit assessor actual looked at= the numbers data entried by his bank manager or broker, perhaps some of the supporting evidence supplied, perhaps a paragraph of covering notes, only. If the numbers dont calculate to a 'pass', the data entry person gets in trouble, and the loan gets declined. If the numebrs do pass, the broker or banker can let sash know how helpful the graphs were.

 

[sash]

What can I say ...I think you might have answered why your own question why you don't think it will pass. Spending 20 minutes on assessing a loan on a portfolio worth millions??? Not surprised...as I have upset quite a few PYTs (Pretty Young Things - male or female) who would not know how to assess a loan if their life depended on it. The Big 4 are full of them....look good in suits but empty vessels really.

In case you are thinking they are being soft on me....the real reason is because the CF+ just on property is 70-90+ pa (depending on any renos done in the year) and saving rate of 10-15k per month.....so no gaming of the system. And yes it is illegal under the new rules.

What Sash thinks his credit assessor looks at = goodness, look at all of the pretty pictures and graphs sash has included in his loan submission, Im going to spend 60 minutes looking through his submission now, even though I am only allowed 20 minutes for each application or my boss gets mad and makes me work late.Goodness, $800,000 in his offset account, he must be really good with money. Even though it is illegal under the new asic rules, and I will lose my job, Im so impressed, Im going to approve his loan for more money anyway, and just assess on the balance, not the total of the loan.

What Sashs credit assessor actual looked at= the numbers data entried by his bank manager or broker, perhaps some of the supporting evidence supplied, perhaps a paragraph of covering notes, only. If the numbers dont calculate to a 'pass', the data entry person gets in trouble, and the loan gets declined. If the numebrs do pass, the broker or banker can let sash know how helpful the graphs were.

 

[tobe]

great, then thats the reason the loans approved, not the graphs or the presentation, or the amount of cash in offsets. The cashflow means your income is more than your liabilities (including if the moeny in offset was fully drawn).

 

[devank]

AMP is probably one of the most generous lenders out there but they come to a grinding halt once you've got 10 properties. Regardless of debt levels, you'll have trouble getting more money out of them.

This is what banks are telling us about our borrowing capacity
AMP - 1.5 M
Homesite - 1.41 M
Westpac - 1.37 M
CBA - 1.26 M
Maq - 1.23 M
ANZ - 843 K
Suncorp - 816K
Bankwest - 691K
St George - 653K
Citibank - 567 K

It is amazing how different these figures are. There seems to be two groups (or more). AMP, Homesite, Westpac, CBA & Maq in the first group. Then ANZ, Suncorp, Bankwest, & St George.

Generally we consider our borrowing capacity as half of ANZ's figure

 

[pinkboy]

This is what banks are telling us about our borrowing capacity
AMP - 1.5 M
Homesite - 1.41 M
Westpac - 1.37 M
CBA - 1.26 M
Maq - 1.23 M
ANZ - 843 K
Suncorp - 816K
Bankwest - 691K
St George - 653K
Citibank - 567 K

It is amazing how different these figures are. There seems to be two groups (or more). AMP, Homesite, Westpac, CBA & Maq in the first group. Then ANZ, Suncorp, Bankwest, & St George.

Generally we consider our borrowing capacity as half of ANZ's figure

Are you getting this information from your Broker, or do you have access to a calculator?

pinkboy

 

[Aaron_C]

Are you getting this information from your Broker, or do you have access to a calculator?

Sounds like the output from a broker's software.

 

[pinkboy]

Sounds like the output from a broker's software.

I thought as much, Ive just never seen it before.

pinkboy

 

[devank]

Are you getting this information from your Broker, or do you have access to a calculator?

pinkboy

Yes.. Broker's software. Always be nice to your broker

 

[sash]

A question for you??

Are IPs covered by the UCC (Universal Credit Code)???

Hint....has a bearing on the duty of care.....

great, then thats the reason the loans approved, not the graphs or the presentation, or the amount of cash in offsets. The cashflow means your income is more than your liabilities (including if the moeny in offset was fully drawn).

 

[Shahin_Afarin]

Those numbers are not accurate and also the numbers will vary quite a bit depending on the scenario type (investment, o/o, negative gearing, etc).

 

[Peter_Tersteeg]

Yes.. Broker's software. Always be nice to your broker

Absolutely, and you should always be nice to your broker and give your broker nice things like cars, overseas holidays and chocolate.

Lenders generally use the same methodology to determine affordability. It's essentially how much money is coming in, subtract how much is going out and what's left is the amount that can be used to service a new loan.

The reality is somewhat more complex. Lenders have different policies to determine the figures used in the overall equation. Since the policies vary, some lenders will work very well for some groups, and others will work well for other people. Then there's different policies on how they view view different types of employment, savings, etc. Needless to say, it's a full time job to keep track of it all.

In most cases however, I tend to find that if people do their own budget and understand their own cashflow, they'll come to a figure which they believe they can comfortably borrow. This is usually quite a bit less than what can actually be obtained.

The exceptions to this tend to be be investors with larger than average portfolios (the good), the people who don't understand their cashflow very well (the bad) and those don't understand the risks they're intending to take (the ugly).

 

[devank]

Those numbers are not accurate and also the numbers will vary quite a bit depending on the scenario type (investment, o/o, negative gearing, etc).

How can you say it is inaccurate without knowing exact inputs?
scenario - 5% yielding 400k investment property.

 

[Shahin_Afarin]

CBA, ANZ and Bankwest would not top St George on servicing especially by that margin regardless of the scenario.

 

[tobe]

A question for you??

Are IPs covered by the UCC (Universal Credit Code)???

Hint....has a bearing on the duty of care.....

Yes, IPs certainly are covered by the NCCP, which replaced the UCC a couple of years back now. Notwithstanding, in previous years investors were given a little more scope/risk. This didnt amount to throwing away the calculator and assessing based on how much money is in the offset account, or how well presented the application was.

Sash, I think its great you have done so well, and a clearly presented application will help in getting a loan approved. But having cash in an offset account wont, ever. Im not too fussed how you get your loans approved, but the OP here had a specific question about how to improve their serviceability.

Recomending others follow your example is just going to perpetuate myths and untruths about how lending actually works for property investors.

I like this site and this part of the forum especially, because the information is factual. And when its not people get called on their stuff.

 

[Jamie M]

This is what banks are telling us about our borrowing capacity
AMP - 1.5 M
Homesite - 1.41 M
Westpac - 1.37 M
CBA - 1.26 M
Maq - 1.23 M
ANZ - 843 K
Suncorp - 816K
Bankwest - 691K
St George - 653K
Citibank - 567 K

It is amazing how different these figures are. There seems to be two groups (or more). AMP, Homesite, Westpac, CBA & Maq in the first group. Then ANZ, Suncorp, Bankwest, & St George.

Generally we consider our borrowing capacity as half of ANZ's figure

Yeah it's crazy how different the span can be.

I assume there's a few existing mortgage debts in the calculation? The difference in max borrowing is usually due to the way each lender treats the debt held with other financial institutions.

AMP and Homeside for instance will go off the actual debt (the actual repayment) and not add an assessment rate or calculate it on P&I. Other like Citi, BWA, etc will add these assessment rates to other ongoing debt - which kills servicing for the average investor once they've got a few properties.

Cheers

Jamie

 

[sash]

So you understand the permise is to understand the client and their ability to repay. That means if a lending institution can provide evidence that they have done their due diligence ...then they are covered. I am not a fan of the NCCP as it has slowed the loans process and level of documentation required by lending institution covering their backsides is insane.

Serviceability is also a judgement issue in the end and the risk .....

Don't get to wound up...not having a go at you. I am sure you do a stellar job.....but I do get frustrated by the young clowns with limited experience the Big 4 are employing. Dumb and dumber some of them.....

Yes, IPs certainly are covered by the NCCP, which replaced the UCC a couple of years back now. Notwithstanding, in previous years investors were given a little more scope/risk. This didnt amount to throwing away the calculator and assessing based on how much money is in the offset account, or how well presented the application was.

Sash, I think its great you have done so well, and a clearly presented application will help in getting a loan approved. But having cash in an offset account wont, ever. Im not too fussed how you get your loans approved, but the OP here had a specific question about how to improve their serviceability.

Recomending others follow your example is just going to perpetuate myths and untruths about how lending actually works for property investors.

I like this site and this part of the forum especially, because the information is factual. And when its not people get called on their stuff.

 

[tobe]

So you understand the permise is to understand the client and their ability to repay. That means if a lending institution can provide evidence that they have done their due diligence ...then they are covered. I am not a fan of the NCCP as it has slowed the loans process and level of documentation required by lending institution covering their backsides is insane.

Serviceability is also a judgement issue in the end and the risk .....

Don't get to wound up...not having a go at you. I am sure you do a stellar job.....but I do get frustrated by the young clowns with limited experience the Big 4 are employing. Dumb and dumber some of them.....

Im not wound up, and Im not a young clown, though Im sure you have come across your fair share.. The trouble with NCCP is historically lenders assume the limit of a loan not the balance when 'understanding the client and their ability to repay'. In the past some lenders would waive this requirement for credit card limits if the applicants could show the full balance repaid each month. Even that loophole is pretty much closed these days. I cant think of a lender that still has that policy currently. Im not saying your lender hasnt approved your loans. Im saying having cash in the offset account impedes the amount you can borrow. It isnt overlooked, it isnt disregarded because you havent used it yet. It isnt disregarded because you are a sophisticated investor.

Now the trouble is, we arent going to get to the bottom of this argument.

All you can prove is what you supplied the lender, and the approval the lender issued. The lender doesnt say how they approved the loan.

All I can provide is the general gist of what happens in between, the mechanics. Because I have a little bit of experience in that stuff in between, I reckon the reason for your approval isnt because you have cash in offset, its in spite of having cash in offset.

Now unless you can prove the reason why your loan was approved was because you had cash in offset and supplied a well presented application, its a bit of a moot point really. On the one hand we have an obviously experienced investor with one opinion on how loans are approved, and on the other we have one moderately experienced investor and long term proffessional lender with another opinion.

Good day to you sir.

 

[sash]

No worries...all good.

Did not say you were a young clown.

By the way I got my approval for one in WA....even the LMI people were quick to give the nod.

It also does not hurt.....to have some conversations with the credit guys that you know how the system works.....

Im not wound up, and Im not a young clown, though Im sure you have come across your fair share.. The trouble with NCCP is historically lenders assume the limit of a loan not the balance when 'understanding the client and their ability to repay'. In the past some lenders would waive this requirement for credit card limits if the applicants could show the full balance repaid each month. Even that loophole is pretty much closed these days. I cant think of a lender that still has that policy currently. Im not saying your lender hasnt approved your loans. Im saying having cash in the offset account impedes the amount you can borrow. It isnt overlooked, it isnt disregarded because you havent used it yet. It isnt disregarded because you are a sophisticated investor.

Now the trouble is, we arent going to get to the bottom of this argument.

All you can prove is what you supplied the lender, and the approval the lender issued. The lender doesnt say how they approved the loan.

All I can provide is the general gist of what happens in between, the mechanics. Because I have a little bit of experience in that stuff in between, I reckon the reason for your approval isnt because you have cash in offset, its in spite of having cash in offset.

Now unless you can prove the reason why your loan was approved was because you had cash in offset and supplied a well presented application, its a bit of a moot point really. On the one hand we have an obviously experienced investor with one opinion on how loans are approved, and on the other we have one moderately experienced investor and long term proffessional lender with another opinion.

Good day to you sir.

 

[Aaron_C]

No worries...all good.

Did not say you were a young clown.

By the way I got my approval for one in WA....even the LMI people were quick to give the nod.

It also does not hurt.....to have some conversations with the credit guys that you know how the system works.....

You got approved for an LMI loan....no biggie. There are easy LMI loans and hard ones. Try getting a 95% + LMI + 20k cc loan approved consistently