Join Australia's most dynamic and respected property investment community

Assets- what % of income do banks consider when applying for a loan.

Discussion in 'Other Asset Classes' started by Barny, 24th Mar, 2016.

  1. Barny

    Barny Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    1,178
    Location:
    Melbourne
    hey team,

    Been advised banks consider up to 80% of residential rental income for serviceability, when applying for a loan.
    What do other asset classes give, commercial?

    Anything higher than 80% ?

    Cheers.
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,758
    Location:
    Perth WA
    There are commercial loans that will use just the lease of the property you're purchasing to service the loan, no other income required. It's completely different to resi.
     
  3. Barny

    Barny Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    1,178
    Location:
    Melbourne
    Hey Jess,

    So 100% of the rental lease income?
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,095
    Location:
    Melbourne, Nationwide
    Banks use 80% because the other 20% is used as a rule of thumb to cover holding costs like vacancies, property management, maintenance, rates, etc. For residential lending all lenders have a similar rule. Recently ANZ increased it to 25%, but I can personally see an argument for using 30%.

    For commercial properties there are loans that will only look at the full rental income of that property. They won't give any real consideration to other properties. This tends to be known as a "Lease Doc" loan. They use all of the income as described by the lease agreement.

    Most commerical loans however will assess in a similar manner to residential loan using 80% of residential rent. Commercial rent is considered a bit differently as often the holding costs are covered by the tenant - it depends on the lease.
     
  5. Barny

    Barny Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    1,178
    Location:
    Melbourne
    Thanks team, can you please explain below so I better understand.
    I believe I have confused myself.

    Hypothetical..

    No loans owing anywhere.
    No job providing any income, only income is from residential rental.

    You have a residential home fully paid off generating 1200/week in rental income.
    That's 62,400 a year without any expenses taken into consideration. With real expenses, agent fees, maintenance etc etc is roughly 30%.
    62,400-30%=43,680 a year clear, minus some government tax of 6272, gives you clear 37408. (Rough calculations and taxes simple.)

    Now I decide to go get a loan for an investment with the above scenario.

    Which figure do lenders use as my income for serviceability?


    62400
    43680 -30%, but some do 20%
    37408
    ?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    $1200 x 80% roughtly
     
    Barny likes this.
  7. Barny

    Barny Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    1,178
    Location:
    Melbourne
    Thsnks terry.

    What if you owned commercial realestate outright, giving you 1200/week in rent?

    Still 80%?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    i don't know. I can't say I have ever had a client who personally owned a commerical property. Most people that own commercil property do so through companies and trusts.
     
    Last edited: 24th Mar, 2016
  9. Barny

    Barny Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    1,178
    Location:
    Melbourne
    Please excuse my ignorance. Borrowing % if earning through a trust?
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    It depends. Lenders can look at the last 2 year financials or sometimes they will just assess the property as if owned by the individual - strictly speaking they should do this though.
     
    Barny likes this.