Another serviceability screw gets turned.

The NAB group of Companies have announced effective 12 Dec they are once again tightening the serviceability screws.

They are introducing an amended Living Allowance scale which is progressive based on the borrowers level of income (More expensive for a single person on $150K than one on $90K) and more importantly changed how they assess external debt.

In the past NAB and their spin offs (i.e NAB Broker, Advantedge, UBank etc) have taken the actual debt and applied a 28% loading to the interest rate which in many cased worked out better than a
flat 7.4% P & I.

They are now moving to a calculation based over the remaining P & I term i.e if you have a 25 year investment loan with 5 years interest only the external debt will be worked on a 20 year P & I repayment.

Obviously this reduces the amount an investor can show they can service and appears to be another over reaction.

Cheers


Richard

 

Bum. That will bring it more or less in line with CBA. It's still on actual rate, I'm assuming?

 

ASIC are getting concerning about 'living expenses' and this will be their next line of attack which is making lenders tighten up. I expect most will follow.

 

I was questioning my BDM about this earlier today. He told me they're keeping assessment of existing debts at actual repayments with the 28% loading.

He mentioned that new debts would be taken at P&I over the remaining loan term (which actually isn't the case at the moment, it's the full loan term on P&I).

This in itself isn't a huge change for most people. The cost of living assumptions could be quite nasty however, we'll have to see how that plays out.

I'm yet to see an official notification from the NAB yet. If it's as Richard has said, the NAB will go from a great lender to a terrible one.

 

I was quite pleased at how low our " living expenses " were on some of our recent applications ...

Cliff

 

I had lunch yesterday with Brett Halliwell from Advantedge and whilst he wouldn't give too much away he indicated that existing debts would be assessed over a remaining term on full P & I .
I think the NAB won't officially release for another few days but I am told any application lodged after this weekend will likely attract the new policy.

Cheers


Richard

 

If it's at 7.4% same as assessment rate it will be terrible, but is that what they're suggesting or actual rate over the remaining term?

If it's actual it will still be disappointing but if it's all OFI at assessment rate that will be the end of them.

 

I just confirmed with my BDM that existing debt is staying at actual rate plus 28% - it's only the new loan that is getting assessed over the remaining P&I term. Also overtime and bonuses etc are getting shaved to 80%.

Sounds like there's some crossed wires?

 

Yikes, thanks for the update Richard.

This will bring NAB in line with everyone else. They've been an outlier for a few months with their servicing (negative gearing + smaller buffer on actuals + living) - if they're changing two of the three, its similar to most of their competitors.

I'm sure an official announcement will be released to brokers very soon.

 

I got the message last night from my BDM, my initial interpretation was the same as Richards. The phone call this morning clarified it to my previous post.

Servicing is getting very tricky these days. Sliding scales for living expenses only makes it more obscure.

 

Sweet - so it's just new debt that's having the P&I repayments over 25 years applied (assuming 5 year IO term) and OFI is still being assessed at actual + 28% loading?

 

This from my broker today (my emphasis):
"ANZ have increased their base assessment rate in the last week, therefore lowering the borrowing capacity of everyone who applies with them (their base assessment rate is 2.75% above the actual rates offered – so as to show that people can still afford the loans if rates rise by up to 2.75%).

And your borrowing capacity is based on:

- P&I repayments for the 80% investment loan and only 2 years IO repayments for the LOC (as the longer the IO period the lower your borrowing capacity)."

Is this last part the new normal? The product offering suggests 30 years IO, and while I know that "hope isn't a strategy", one would HOPE to refinance another IO period.

 

ANZ hasn't actually changed much in policy, they've only really increased the assessment rate. The rest of it remains the same.

Not exactly the most generous model for investors, but at least they're consistent.

 

NAB is changing the servicing cal in stages, next one is around 1st quarter of 2016 and this later one will be the true "killer" as it will most likely effect Other debt.

Source: NAB ( From Ex-work colleague in credit )

Banks are a bit smarter these days and releasing changes over a X period of time rather than coming out with one big hit.

Example: Westpac came out with 5 changes in July on their service and this killed the market for WBC, and they are now force to provide aggressive pricing.

STG the sister company, has been releasing changes over a 4-6 month period which had mininal impact.

Example: Macqaurie rate increase.. existing customers rate increase effect immediately..new customers as of April 2016.

 

^ This is normal..shorter the I/O period the higher the serviceability.

 

Bugger. I'm thinking this will stop me from building on the lots I'm about to subdivide.

 

ANZ is far from the most generous lender so you probably can still do what you're hoping to do, just maybe not with ANZ.

 

YEEHA!

Tthe translation of all this is.......less lending, less serviceability, less buyers = lower selling prices.

Please, god........

 

Even more reason to track your living expenses. Hubby and I live on far less than the banks think we should. I have always been able to prove our low expenses with detailed quickbooks reporting and corresponding bank/credit card statements.

 

Good advice.

And; whatever your Credit Card status is; clear the debt asap, and reduce the limit asap - they look at the CC limit and not the balance for the serviceability impact.