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Accessing Equity at High LVR's

Discussion in 'Property Finance' started by Jess Peletier, 7th Jul, 2015.

  1. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I know there's been a lot of talk about the recent lending changes - particularly to servicing. While that does affect many investors, the LVR caps that are continuing to be rolled out have the ability to really slow down people in their tracks, particularly newer investors who may have used LMI for their first couple of deals.

    Bankwest and ING were the first to lower their LVR's for investment, and to be honest it was a bit of a 'who cares' scenario with both lenders being particularly crap for investors. But now that Westpac have joined the party, it's going to have more of an impact on the wider investor community.

    If your current lender is still offering lending up to 90% for IP's and you've been considering accessing equity at high LVR's, do it now! It's just a matter of time before we see other major lenders follow suit, which will effectively trap your equity for the foreseeable future unless you're willing to cop a costly refinance and pay a new LMI premium with a new lender.
     
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  2. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    +1

    As I say, "Grab what you can, when you can, whenever you can".

    Better to have options than not, and it's clear that the door is closing on top ups over 80% for most..

    I was just quick enough to recently top up separate loans with Macquarie and AMP (both close to 90%) but if I hadn't got the ball rolling when I did, I'd have fallen under updated policy and have six-figures of equity trapped in my IPs, rather than my offset accounts.
     
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  3. Special order

    Special order Well-Known Member

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    Can someone give an example of what Jess means here please!?
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    I agree with the "lock nut" the equity - but within reason

    "Full stop" refinances to gain 10 k of equity for a 3 k cost isnt a sensible thing unless the 10 k represents part of the risk buffer, or its the amount that stops one from buying the next prop.

    At the current rate of LVR decay, I truly expect pretty much all lenders to be at 80 % lvr or less for Ips for the average borrower.

    Thats really what the regulator would like ( or indeed less) and as some lenders fall off the perch, and the growth is soaked up by others. those others will be under extreme pressure to follow likewise.

    Those with OTPs due to settle in the next 6 to 18 mths................. Id suggest you work on 70 to 80 % lvrs and try as little as possible reliance on LVrs > 80 %

    Who holds Genworth shares ??

    ta
    rolf
     
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  5. Kinnon Bell

    Kinnon Bell Finance Broker

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    I assume what Jess means is making the use of the LMI 'credit' while you can. It's getting increasingly difficult to access equity in LMI territory so make the most of it while you can.
     
  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Kinnon's right.

    Here's an example. New investor with 1 IP.

    You buy a house for $500k, at 90% LVR and pay $10k LMI. Loan amount $450k. Your property goes up 10% and is now worth $550k. You want to access this equity but due to recent policy changes your lender will now only allow you to access equity up to 80% LVR which is $440k - you can't touch it as your LVR is still above 80%!
    This equity is trapped, unless you refinance to another lender.

    This new lender will give you a 90% loan and allow you to access your equity, however you will be required to pay another $10k LMI - which could have been avoided by acting while you had the opportunity with your current lender.

    Worse, if most/all lenders adopt the 80% LVR for IP's you could lose you chance completely until the the policy is loosened.
     
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  7. Special order

    Special order Well-Known Member

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    Ok thanks, so if you did refinance would the new lender want the 10k up front before finalising the loan?

    Seems to me that in some cases it would be worth paying another 10k to get another deposit, especially in a rising market other wise you could be waiting for months to save up more deposit and miss out on growth
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It can be worth it, but even better if you can avoid it!

    You won't need to pay it upfront, the lender will capitalise.
     
  9. Redom

    Redom Mortgage Broker Business Member

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    This should have been done months ago realistically - its quite tricky to get 90 cash outs with most lenders now. Westpac changing their policy is just a continuing tightening that'll go on through 2015.

    Getting 90% cash outs was much easier in January than in July. 'Take the money and run' is good advice for those with strategies to suit (obviously within reason).

    In saying that though, there's solutions out there for those willing to change. Costs, efficiency are likely to be higher.

    Cheers,
    Redom
     
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  10. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yes this was best all done ages ago - but there's newbies on this forum who might not have been privy to that info back then. Now is really becoming the last chance.
     
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  11. shelleykins

    shelleykins Well-Known Member

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    Do the brokers get the feeling that the tightening is a temporary measure that will be relaxed 2 or 3 years down the track or are these changes likely to be here to stay?
     
  12. Mick C

    Mick C Well-Known Member

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    Looking at history and speaking to other older/wiser brokers :)

    The policy will relax within 2-3 years unless we go into a GFC.

    This EXACT same policy ( higher rate for IP and lower servicing etc..) was introduced in 1997 and in 200 both lasted 2 years.
     
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  13. albanga

    albanga Well-Known Member

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    I appreciate this is an investment focused forum but the positives to come out of this are what banks have started and likely will continue to offer for owner occupiers and those with smaller portfolios.

    As Westpac have just introduced and CBA by all accounts coming shortly with 85% LMI. This may just be the beginning for offers such as this and as investment lending dries up much more as it will in the next 1-2 years then this is the sort of stuff they will need to win business.
     
  14. RetireRich101

    RetireRich101 Well-Known Member

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    In jess example even if you can release 90% of 50k equity, likely your current lender will charge you 1-2k lmi.. Still a bargain for one that need this equity
     
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  15. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Agree with the general sentiment - get the money while you can.

    Equity releases have been the bulk of my applications for the last three months. The last month in particular has been extremely busy.

    Nab and ANZ are still doing equity releases up to 90% without a great deal of hassle. Who knows how long this will last for though.

    Cheers

    Jamie
     
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  16. RetireRich101

    RetireRich101 Well-Known Member

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    For the topup equity release that was approved in the last month or so, was the discount rate same?
    Will we see a trend that bank may continue opt for 90%, but won't barge on the rate for the top up mortgage?
     
  17. Toon

    Toon Well-Known Member

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    Does UBank allow equity releases at all? I have my PPOR loan with them & would have around $180K equity, however the loan is fixed till August next year - am I correct that even if UBank did allow equity releases, I would not be able to access that till the fixed period finished?
     
  18. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Normally you should be able to create a new loan for the equity without it affecting your fixed portion, so unless U-bank have some kind of weird thing disallowing it I'd say you should be fine.
     
    Last edited: 8th Jul, 2015
  19. Toon

    Toon Well-Known Member

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    Thanks Jess, does the purpose of the equity release make any difference? I can't see any mention of IP loans on UBank's site. Also, would you know what the current LVR UBank would go up to without LMI? I plan to use a broker to properly organise & structure anything I end up actually doing, but it's good to try & get things a little clearer in my head before I make an official approach.
     
  20. tobe

    tobe Well-Known Member

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    UBank don't lend above 80% I'm pretty sure. UBank are online direct only. Mortgage brokers can't access them as they do other lenders. so you might have to find a pay for service broker to advise on structure.
     
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