Serviceability + total lending

[Rezix]

Hey guys,

I have mostly seen people speak about LVR and deposit being the major constraint in obtaining finance for a property, but still haven't really got my head around the other factors completely so am hoping some of you enlightened people could help me out with a few questions:

1.) I have a cashflow +ve apartment that I am currently renting out on a short-term basis (like a serviced apartment, but no guaranteed rent/contract period/zoning restrictions etc) - is there a fixed percentage of the rental income that would count towards assessing whether or not I could be approved for a home loan for a second investment property?

2.) Is there a restriction around total lending beyond serviceability as well? I have a $50k personal loan (staff rates so was cheaper than margin loan) invested in shares > Would I be better off paying this down to $0 or would the bank really just look at my monthly repayments relative to an assumed level of dividend income from the shares?

Getting a 10-20% deposit is not an issue & I am only looking at 50sqm+ properties, so now I am more concerned with the other factors with getting a loan application approve.

Thanks!

 

[Aaron_C]

Hey guys,

I have mostly seen people speak about LVR and deposit being the major constraint in obtaining finance for a property, but still haven't really got my head around the other factors completely so am hoping some of you enlightened people could help me out with a few questions:

1.) I have a cashflow +ve apartment that I am currently renting out on a short-term basis (like a serviced apartment, but no guaranteed rent/contract period/zoning restrictions etc) - is there a fixed percentage of the rental income that would count towards assessing whether or not I could be approved for a home loan for a second investment property?

2.) Is there a restriction around total lending beyond serviceability as well? I have a $50k personal loan (staff rates so was cheaper than margin loan) invested in shares > Would I be better off paying this down to $0 or would the bank really just look at my monthly repayments relative to an assumed level of dividend income from the shares?

Getting a 10-20% deposit is not an issue & I am only looking at 50sqm+ properties, so now I am more concerned with the other factors with getting a loan application approve.

Thanks!

Actually, INCOME is the biggest limiter for a home loan finance, not cash/deposits due to Lender's mortgage insurance that can increase LVRs to high levels. To answer your questions:

1. Banks usually take 75-80% of rental income for serviceability. Might be less for a serviced apartment because of higher vacancies. Paying off debt would be better obviously for servicing because your monthly repayments reduce. However, if you are looking to borrow more anyway in the future it really makes no difference...

2. There's no restriction on total lending as long as you can service it and the LVR is ok. WIth your personal loan the bank will just assume you keep making the minimum monthly repayments but paying it off would have the same outcome as I said before....none if you're going to borrow more anyway

 

[Marty McDonald]

Just with the appartment rent. If it's short term rentals ie week to week most lenders won't generally accept the income from that. There are ways around it though such as using a lender who will go off the valuers estimate of a "normal market" long term rent. Also if it's been consistant for a few years you could possibly show tax returns to prove consistancy of the rental income that way. Would have to be sub 80% lend with a flexible lender.

 

[Rezix]

Cool, thanks guys.

Just to clarify - I already have finance over my existing property & am not looking to re-finance, so that's not an issue... More after seeing how the bank would view the income I gain from it relative to its outgoings/interest repayments in terms of approving a second loan for a new investment property (no cross-collat).

It sounds like the short-term rental income wouldn't be counted, so would they accept 80% of the normal long-term rent for similar apartments in the building instead?

 

[Aaron_C]

yes that's right

 

[Marty McDonald]

As long as your lender allows that "alternativev use" income but some won't they will not accept that income full stop, stupid as that sounds. Talk to a broker would be my advice and make sure they are accross those potential issues.

 

[Rolf Latham]

to ensure someone doesnt pick something up out of context.

At the dollar levels you are talking, there is no lending restriction usually.

AS the LVR rises and/ or the dollar amount rises, the credit score will be worsened, usually in a NOT linear fashion.

This means that a portfolio exposure of 500 k at 90 % is likley risk assessed aroudn the same as 1000 k at 80, all else being equal.

Most mortgage insurance does get colder feet with aggregate exposures of > 1 million, even though in theory they go to as much as 2.5 per entity

t
arolf