Order of Lenders

[magic]

I have read in other posts that when building a portfolio of IPs, you should start with the least generous lender (more criteria) so that you can utilise the more generous lenders later on when it might be harder to get finance due to issues such as serviceability, loan amount reached a limit with one lender.

But I would have thought that it is better to go with the most generous lenders in the beginning first few IPs, which would mean higher loan amounts, higher LVR and more leverage when you need it most which is in the beginning to maximise the compounding effect of returns/capital growth. When you have a few properties, you may not need to be as aggressive and may scale back with lower LVR and at that stage you have more equity and would still be able to buy more IP while still meeting the tougher criteria of a less generous lender.

What are your thoughts?
Thanks

 

[D.T.]

The more generous ones definitely need to be last. Lets say you have $3mil in loans and your gross rentals are double what your work salary is. Don't expect to be able to rock up to westpac or anz and ask for a 95 percenter.

However, westpac and anz will gladly (just about fell off my chair) help you if you're a salaried worker buying your 1st or 2nd IP. In fact, all of them will. So why not use the ones that won't later on?

 

[Rolf Latham]

my thoughts are

Its simplish, not obvious....................... so your thoughts seem logical.

The challenge is that once you have used up the high end lenders, the lower guys often no longer want you.


Depending on circumstances there are several layers of complexity and fluffy logic.

Pete T had a good post the other describing some of the layers

no lmi removes a layer or 3

ta
rolf

 

[Nattl3s]

So, if someone has started off their portfolio and now wants to get serious about investing and is already with a generous lender. What do they do?
Im with NAB and I feel they may fall into this "generous" category.
Is the next step to get the next IP loan with another - less generous - bank?
Cheers, nat

 

[Coota9]

I have recently sat down with Peter T and he walked through many different scenario's with me regarding staging of lenders to max borrowing/serviceability power.
How you stage your lenders makes a massive difference to what you can borrow,if you borrow say at 90% with lmi say with anz than borrow with them until you max out you effectively lock out your lmi as you can't top up that loan as you have reached your limit.

My advise is you can't plan your end goal until you work out how you are going to finance it..

 

[Rolf Latham]

So, if someone has started off their portfolio and now wants to get serious about investing and is already with a generous lender. What do they do?
Im with NAB and I feel they may fall into this "generous" category.
Is the next step to get the next IP loan with another - less generous - bank?
Cheers, nat

Depends

U may already be beyond help.... Hopefully not

Often we have to look at de weighting the portfolio from higher lenders to lower ie refinance.

In some extreme cases clients need to sell down some stock and re build the right way

Yep

That's how important structuring can be



Ta
Rolf

 

[Greg Reid]

Magic,
The selection of lenders does make a difference if you are going to build a property portfolio. If you only want one or two IP's, then it is not as critical as most will be able to show servicing based on the lenders servicing calculators for most lenders for the first or second property. After that it becomes more selective as to what lenders you can use.

As Rolf also said, if getting into >80% LVR and LMI territory, it adds a further degree of complexity. Does the lender have DUA or are they bound to go to the MI in each case? At what LVR do they have DUA at?

I have attached a maximum borrowing capacity (guide only) for a client from last year looking at their third IP, their existing debt was $1.035m, looking to borrow at <90% LVR. As you can see from these lenders, there is a wide variance in borrowing capacity. For experienced brokers, we know where this report is incorrect (ANZ for instance will not do anywhere near this).

View attachment EC IP#3 Max Borrow.pdf

It is not as if there is only one specific choice, it is a choice from a range of lenders in similar borrowing capacity, so for a first PPOR or refinance of a PPOR, ING, ANZ, Suncorp and Bankwest may be used all having an 100% offset and allowing cash out to 80% without much hassle. The next IP will again be from a range of lenders who just offer simple investment IO loans and as you build your portfolio the number of lenders that you can show servicing with drops off (unless you have extraordinary income levels).

I certainly agree with Coota9, it is a finance strategy using property as the asset class but it is principally about being able to fund that acquisition. You work out what finance you can obtain and then match the asset characteristics to what you need, being price, rent yield and expected capital growth.

Good luck with it.

 

[Terry_w]

Which lenders you use will depend on your situation. In Greg's PDF I notice ANZ could potentially lender more than AMP for this client. But with other clients it could be totally different.

I tend to suggest ANZ early on for investment clients as the more IO investment loans you have the harder it will be to qualify with ANZ. As a guide one of my client has about $1.4mil with ANZ but can no longer service, but we are able to get 2 and maybe 3 more with the next lender.

But if the client was a lawyer or an accountant i may suggest Westpac upfront as the client can get 90% LVR loans with no LMI. This allows them to leverage high and save a lot on LMI.

Also don't forget it is easy and cheap to refinance these days so if you do start with the wrong lender it doesn't mean you need to stay with them.

 

[Peter_Tersteeg]

The more generous ones definitely need to be last. Lets say you have $3mil in loans and your gross rentals are double what your work salary is. Don't expect to be able to rock up to westpac or anz and ask for a 95 percenter.

However, westpac and anz will gladly (just about fell off my chair) help you if you're a salaried worker buying your 1st or 2nd IP. In fact, all of them will. So why not use the ones that won't later on?

It looks that way on the surface and it's logical. The problem with this strategy is that eventually you will likely want to access equity in the first or second property you bought. At that point your only option is to refinance to another lender as that first lender no longer services.

This is fine if you're willing to leverage to only 80% and the cost of refinancing, but often people will leverage to 90% early on and they'll want to leverage that property later. Most people are unwilling to pay LMI a second time for a bad decision they made years ago.

As Rolf indicated, there's a number of layers to be considered.

A better strategy is to start to map out the longer term strategy right from the start, taking into consideration what happens when you want to access equity. Consider where the road blocks will be upfront to better be prepared for them later.

I agree with Terry's general observation that AMP will have better servicing than ANZ when the borrower has multiple properties. That doesn't mean you should automatically use ANZ first however, especially at 90% LVR.

Lower serviceability lenders may have a role to play based on other factors, but automatically assuming the order of lenders is to go from lowest to highest is short term thinking.

 

[Mick C]

If your 2,5-10 years plan is to acquire max 2-3 properties and your income is ok to service this than by all means go with the most generous lender if you wish or the cheapest etc...

But if you have plans to acquire 4,5,6 over 10 properties in a short period of 5 years than you def need to plan ahead and leaving some of the most generous lenders last is a must. It really depends on your file...some of these generous lenders may come out with a good valuation or have a good cash out policy which you may utilize early on as well.

Remember end of the day your not STUCK with any one lender for life...it's common for a lot of my clients to go with say NAB from day 1 and than 4 years later we refinance them out to ANZ, CBA, westpac etc... for valuation purchase, better rate or better planning etc...and 2-3 years later we go BACK to NAB again for there generous servicing etc...

Work with what you have and most importantly plan ahead.

 

[Nattl3s]

Thanks everyone. Sorry for hijacking the thread slightly Magic.
Take home message - speak to an experienced investment property mortgage broker prior to starting portfolio as bank lending criteria varies enormously and is overly complicated
Alas I have also stumbled in the x-coll area amongst other things.
Well, least I'm learning.
Cheers, nat

 

[Qlds007]

Never too late to untangle yourself and often worthwhile doing upfront before your portfolio grows.

 

[tobe]

Remember also that lenders serviceability calculators and policies change over time. For instance fairly recently AMP changed their policy around multiple rental properties. They now preclude any application where the A&L includes more than 10 investment properties.

So not only isnt there a map of generous to stingy lenders everyone can follow (because each individual's circumstances are diferent) the map changes over time as the lending environment changes.

 

[strongy1986]

We currently have loans with boq of 500k - 80%

I have a good relationship with the branch manager so I would prefer to stay with boq for our next loans

Where does boq sit on this magic list?

They also have an issue with part of my income and don't include it for servicing. The income is allowances and is around 12k a year so not insifnificant!

What lenders don't have an issue with including allowances

 

[Mick C]

We currently have loans with boq of 500k - 80%

I have a good relationship with the branch manager so I would prefer to stay with boq for our next loans

Where does boq sit on this magic list?

They also have an issue with part of my income and don't include it for servicing. The income is allowances and is around 12k a year so not insifnificant!

What lenders don't have an issue with including allowances

Allowance is ok with most if not all lenders; only a very small handful of credit unions may not accept them.

 

[Rolf Latham]

We currently have loans with boq of 500k - 80%

I have a good relationship with the branch manager so I would prefer to stay with boq for our next loans

Where does boq sit on this magic list?

A good relationship usually wont survive "credit"..........

At least with the BOQ model, the btanch person usually doesnt get moved around every 3 years

I havent done a BOQ loan since they moved to their owner managed franchise model, but their servicing was similar to Suncorp, thus in the lower 3rd.

 

[Terry_w]

Where does boq sit on this magic list?

You misunderstand - there is no magic list, but a list which would vary depending on the circumstances of the client.

That is like asking for a list of operations and which should you get first - it depends on the diagnosis.

 

[Aaron_C]

Where does boq sit on this magic list?

Pretty low as they sensitise external mortgage debts like Heritage and they have no DUA for LMI.

 

[Freddie Mac]

Can anybody tell me which lenders lend based on last 3 months earnings annualized? I know ANZ do. Do they all do this? Is it something that all brokers should be familiar with?

 

[Brady]

Can anybody tell me which lenders lend based on last 3 months earnings annualized? I know ANZ do. Do they all do this? Is it something that all brokers should be familiar with?

What are the earning?

PAYG - part-time / full-time / casual

Self Employed - how long in the industry, what were you doing prior

rent?