Positively geared properties + resistance from ING to OK finance...anyone else?

[Jen_PFR]

Hi all,

I tend to be more of a lurker rather than active participant in forums generally, but a recent experience has been a bit unusual, and I'm interested to know if anybody else has had similar issues.

We have 6 investment properties, plus a PPOR. All IPs are either neutral or +vely geared, as we rent them fully furnished and also manage them ourselves. We bought IP 5 a couple months ago (signed contract in Dec '11, settled Jan '12) and IP 6 has just had finance approval.

Anyhow, the issue was the finance approval. We stumped up 5% cash deposit and copped the LMI on the chin for IP5; finance approved no problems. Did the same for IP6, 5% cash deposit and LMI etc. but ING stalled on approving finance. I say 'stalled' because they didn't actually say 'no' but the risk assessor came back with a statement to the effect of 'we don't believe your rental returns, highly unlikely, and so you don't have the capacity to service the loan'. Of course as part of the paperwork we had provided signed copies of all current leases, so they were basically calling bull***** on us, thinking we were stretching the truth.

Anyhow, after much to-ing and fro-ing, we ended up giving them a copy of our 2010 tax assessments, and I spent a long evening scanning all leases from the 5 IPs over the last 18 months, then emailing them to our broker, to provide further assurance around the income we generate. This wasn't enough however - ING also wanted our 2011 tax returns - when we said we hadn't lodged them yet (as our accountant does it for us, around April), they informed us it didn't matter and that they wouldn't approve the loan without the evidence.

After a lot of faffing around (and no, they didn't get our 2011 tax returns after all), the loan was finally approved 'via a risk appraisal'.

Has anybody else had similar issues with their financial institution? Alternatively, has anybody had good experiences with financial institutions that are more open minded regarding positively geared properties?

 

[Bigtone]

it's not about the properties being positively geared its about the rent being above the market averages.

u r crazy just using one lender anyway.

u need to set yourself up properrly b4 u lodge the next application to purchase

 

[Aaron_C]

Jen I think you've encountered a problem called 'heavily rent reliant'. This becomes a problem for loans over 80%. I find it unlikely that a credit assessor would disbelieve your rental statements because they are prima facie verification of rental.

 

[Jen_PFR]

u r crazy just using one lender anyway

Yep, we've just worked that one out!

We're looking around at other finance options - haven't tried Citibank but their current fixed term rate of 6.19% for 3 years (95% loan) looks pretty good - we might be giving them a go for the next purchase.

Aaron, the funny thing is for IP5 and IP6 we presented the same initial set of data, as IP5 and IP6 were only separated by 5 weeks, and had no questions asked for IP5, it went through without any hassles. I guess we just came up against a hardarse the second time, in terms of the internal assessment.

Thanks for the replies guys - keep the feedback coming, don't be shy

 

[Rolf Latham]

Hi Jen

You have a few issues here and most have been mentioned already


A few additionals and these are delivered with love Ok , not having a go.


1. STOP focussing on rate first and foremost ?

2. Use lenders that dont give a rip about locn. Dont use second tiers for this sort of work that DONT have their own authority for LMI approval. Your idea of using Citi isnt going to fly, they will only go to max 80. BTW, ING is probably the LAST lender we would use for a harder deal for a bunch of reasons.

3. You have BIG concentration risk with using just or mainly one lender ( assumption)

4. That same concentration risk gets multiplied for you because your lenders one mortgage insurer wont like you a lot either.

4. If your income is Boosted by furnished rentals ( which are often more short term) / and or remote locns, or smaller inner/near city coded appartments expect trouble in the first place. Its unreasonable for you to expect a credit officer or an insurer to approve a loan where the rental income is x % more than normal AND you are reliant on the X bit, without strong data to support your case. Go out of your way to tackle that head on, dont try and be "cute" with it. 95 % IO investment lends and "fluffy data" dont go together, in fact if you were one of my staff or broker mentorees youd get a major talking to, because thats the number one way to turn a good deal into a declined. Your credit guy/girl doesnt have the gift of clear vision that you do.

Flying analogy on its way. You are working off VFR and expect the credit people to do the same. Credit/LMI are forced to fly off second hand data, and they can do this because they "instrument rated". They dont actually need the vision that you have, but by controlling and minimising the data flow you are making it very hard for them, to the extent that they may bail out of the risk and decline the loan. Improve the pilots comfort level and you will usually get a better result.


5. Pull a copy of your credit file, and address any high levels of activity or duplicate entries ( likely)

6. Im taking a punt on your $ exposure, but Id suggest DONT use any more lenders that use Genworth as the Mortgage Insurer, unless ING has been self insuring on REF.

6. Get your stuff together and build a financing plan, what lender, what mortgage insurer, when and why. If you arent careful, you may have already limited your growth potential by having poor finance structure ( just guessing here)...........are you using trust with corp trustees at all ?

7. This is possibly the hard one. Get a decent mortgage broker, and if you have one already, either get a new one, OR let them get on with what THEY need to do. I find many "in your face" strong minded clients will convince their broker to "their" way of thinking. Many a broker that isnt strong enough to stand up to that will do your "beck and call" because they are fearful of losing your business........... not something you want. I can say that with reasonable comfort because for a while, that used to be me.



ta

rolf