Investor Lender Order

[albanga]

Hey Brokers,
I was curious to learn more about this concept of investor lender order. I have read numerous posts detailing how your best to start investing with certain lenders due to serviceability/cash out and then as your portfolio grows you use other lenders with perhaps more favorable serviceability which you may require due to your increased debt.

This is not specific to anything, I am just a budding broker and keen to understand this concept further.
If anyone is willing to shed some light, an example would be fantastic

Thanks In Advance
Ben

 

[Jamie M]

Hi Ben

There's no one size fits all - all depends on the client, their equity, borrowing capacity, risk profile, and importantly - their plans.

There are some lenders you just wouldn't bother with for investors - because of cashout issues and poor servicing, but apart from that, there's no set rule and everything is dependent on the clients needs.

p.s - I think there was a good post on this topic recently. If you do a search you may find it.

Cheers

Jamie

 

[albanga]

Thanks very your speedy reply like always Jamie
I will send some time trying to find the post regarding this.

 

[Rolf Latham]

Thanks very your speedy reply like always Jamie
I will send some time trying to find the post regarding this.

pick up the phone

speak with Pete T

This is not a thing to try at home............mythbusters proved it : )

ta
rolf

 

[Peter_Tersteeg]

It's not as simple as figuring out which lenders will give you the least and which will give the most and working your way down the list. There's a lot more to consider such as:

1. When you want to access equity 5 years down the track, which property is going to have it. Make sure you'll still be able to borrow through them later. The whole 'order of lenders' theory tends to fall to pieces on this alone.

2. If you're taking an aggressive approach and lending using LMI, do you understand each lenders LMI policy and the actual insurers policy? Where do they diverge? Most people don't understand that sometimes you have to plan years ahead to meet both lender and mortgage insurer policies.

3. What happens when there's a downturn or a GFC type event? How is the lender funded and what might be the consequences of that? Which lenders have the track record of working with borrowers rather than gouging them?

There's a lot to strategic lending that goes on behind the scenes, which is hidden from most borrowers. "Order of lenders", is a simplified phrase that only works to a point.

 

[albanga]

Thanks guys! So definitely not a simple system, it takes a lot of intricate knowledge of lender policies and ofcourse understanding your clients goals.

But I just had another thought, I posted this at 10pm and within 20 minutes the 3 broker whizzes of SS had replied. If I one day hope to become a broker does that mean I need to forego sleep?

 

[Redom]

The general 'rule' that's talked about is going to the most conservative lenders first and then the most loose down the track.

However, as Pete brilliantly highlighted, there's a whole lot more to it and it is a dynamic evolving process over time. Choosing a lender now will need to take into account of your property goals over the next 3,5,10 years.

LMI adds further complexities that need to be planned for.

If you're a budding broker, print of the lending guidelines for both QBE and Genworth (PM me if you cant find it and ill pull it off my system). Read, learn, know.

Echoing Rolf - I highly recommend giving one the SS experts a call and setting up a mentoring arrangement. May be costly, but IMO $$$ worth spending if you want to have a real crack at a career in the industry. I don't know Pete personally, but I bet he'd be excellent. Pretty sure Rolf is the guru that taught him (and several others) too.

You may have read elsewhere, in general there are some lenders to 'leave in the bank' (so to speak) - Macquarie and NAB being the most popular - main reason their strong servicing calculator and assessment of other mortgage debt.

Hope this helps.

Cheers,
Redom

 

[Redom]

Thanks guys! So definitely not a simple system, it takes a lot of intricate knowledge of lender policies and ofcourse understanding your clients goals.

But I just had another thought, I posted this at 10pm and within 20 minutes the 3 broker whizzes of SS had replied. If I one day hope to become a broker does that mean I need to forego sleep?

Ha! My partners starting to get annoyed by my SS addiction and the strange hours i'm working.

Hours are quite variable - it needn't be a 9-5 role and can be worked on through the day (anytime).

Dw, i'm sure you can fit in time for sleep. Generally clients don't call me after 10 - others may have different experiences.

Cheers,
Red

 

[Corey Batt]

If I one day hope to become a broker does that mean I need to forego sleep?

What's sleep?

 

[Peter_Tersteeg]

But I just had another thought, I posted this at 10pm and within 20 minutes the 3 broker whizzes of SS had replied. If I one day hope to become a broker does that mean I need to forego sleep?

Module 3, part C of the diploma in mortgage broking covers, "Coincidentally being available when people ask questions on property investing websites on Friday evenings which should otherwise be date night". It's an elective option and thus some brokers forgo it as they'd rather actually have, "Date night".

 

[Jamie M]

If I one day hope to become a broker does that mean I need to forego sleep?

Not at all.

Work smart and you can easily maintain a work/life balance.

Being self employed provides lots of flexibility.

The "no sleep" comes for the poor buggers who are starting out and trying to maintain a full time PAYG job whilst writing loans.

Cheers

Jamie

 

[Shahin_Afarin]

For the sake of clarity - the "use the conservative lenders first" is a very dangerous comment. The problem I see is people using your ING's and more recently Suncorp who both have great rates but servicing is extremely poor.

The problem then arises when you want to go back to these loans and pull out equity and you can't because of servicing. So here you are, you have paid heaps of LMI and you are virtually snookered. This is why planning ahead is very important.

As an example, it may make sense to use a lender like Macquarie that will go off actual rates (provided the loan is at least 6 months old) rather than being snookered.

I do however like the comment "use the more generous lenders towards the end of your portfolio". The reason being is that generous lenders like NAB will service existing NAB debts at high "benchmark" interest rates whereas they will service other lenders' debts at actual rates. Therefore its best to "save" a lender like NAB towards the end when you genuinely need the borrowing capacity.

You just don't want to peak too early by using a lender like NAB at the start of the journey....

ps Macquarie is just an example.

 

[albanga]

Hi All,
Thanks for all the great replies!

Redom I am actually lucky enough to have a mentor already lined up and at this stage I am just completing all the pre-requisites (Just completed my CertIV in finance and mortgage broking, onto AML/Counter Terrorism).

This forum has been fantastic though and I must say I have learnt far more from just reading broker posts, replies and asking my own questions than I did from the entire certIV.

In regards to my question then obviously this knowledge just comes from time in the industry and an understanding of each lenders policies (not something you will find in course material).

And Jamie unfortunately I will be one of those poor guys attempting to transition across from my current industry. I dare say I have a few late nights coming up in the next year or two!

 

[Jamie M]

And Jamie unfortunately I will be one of those poor guys attempting to transition across from my current industry. I dare say I have a few late nights coming up in the next year or two!

All good - you've got to start somewhere and not everyone has large cash reserves to support themselves for a year or two while setting up a business.

Cheers

Jamie

 

[Redom]

Hi All,
Thanks for all the great replies!

Redom I am actually lucky enough to have a mentor already lined up and at this stage I am just completing all the pre-requisites (Just completed my CertIV in finance and mortgage broking, onto AML/Counter Terrorism).

This forum has been fantastic though and I must say I have learnt far more from just reading broker posts, replies and asking my own questions than I did from the entire certIV.

In regards to my question then obviously this knowledge just comes from time in the industry and an understanding of each lenders policies (not something you will find in course material).

And Jamie unfortunately I will be one of those poor guys attempting to transition across from my current industry. I dare say I have a few late nights coming up in the next year or two!

Great work with lining up a mentor - pretty important element to success. If you havent already seen it, theres a thread on SS (around May this year) that talks about becoming a broker. Some very useful info in there.

 

[Redom]

For the sake of clarity - the "use the conservative lenders first" is a very dangerous comment. The problem I see is people using your ING's and more recently Suncorp who both have great rates but servicing is extremely poor.

The problem then arises when you want to go back to these loans and pull out equity and you can't because of servicing. So here you are, you have paid heaps of LMI and you are virtually snookered. This is why planning ahead is very important.

As an example, it may make sense to use a lender like Macquarie that will go off actual rates (provided the loan is at least 6 months old) rather than being snookered.

I do however like the comment "use the more generous lenders towards the end of your portfolio". The reason being is that generous lenders like NAB will service existing NAB debts at high "benchmark" interest rates whereas they will service other lenders' debts at actual rates. Therefore its best to "save" a lender like NAB towards the end when you genuinely need the borrowing capacity.

You just don't want to peak too early by using a lender like NAB at the start of the journey....

ps Macquarie is just an example.

Agree 100% Shahin, definitely important to consider much more than that general (and very dangerous) first approach.

Adding more colour, i think its also important to appreciate that lending policies are dynamic and change over time. While its almost impossible to fully pre-empt what changes will happen, policies can easily change as the lending market/risk appetites evolve (Macquarie's recent conservative change to cash outs are a great example). It just means plans will evolve and the idea of 'order' of lenders' isnt a static equation.

Tweaks are probably more likely to occur at the top of an investor driving housing boom - regulators may start cracking the whip on certain lending practices that lead to tweaks in policies (like cash out) from lenders.

Cheers,
Redom