Join Australia's most dynamic and respected property investment community

Best bank to start your investment portfolio

Discussion in 'Property Finance' started by JuliaCFA, 22nd Oct, 2015.

  1. JuliaCFA

    JuliaCFA Member

    Joined:
    22nd Oct, 2015
    Posts:
    12
    Location:
    Melbourne
    Hi,

    I am buying my first investment property. My broker got 1.15% discount on the standard variable rate from CBA for me and told me the CBA is a really good bank for investors.
    I still think the rate is quite high compare to my loan on my own home. Especially if now CBA start to increase its variable rate. Moreover they are charging almost $400 per year for their MAV package and I don't get any advantage other than the negotiated rate.
    I also had a chat with some of my friends who are investing. It looks like their brokers are always go to CBA as well.
    So my questions are:
    1. Do you think it is a good rate what I have with CBA? (Their standard rate for investor is 5.87% now so my final rate would be 4.72%)
    2. I was also wondering if there is a real good reason to start with CBA to build your investment portfolio or it is just because all the brokers in town have their biggest commission with CBA?
    Cheers,
     
  2. tobe

    tobe Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    885
    Location:
    Melbourne
    There isn't a big difference in commission for the cba. I'd say it's just coincidence you and your mates have been given similar advice.
    Cba aren't bad, but are they the most appropriate lender for you? Not sure without lots more detail.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,773
    Location:
    Perth WA
    Generally, I like CBA for investors. They have good cash out policy, servicing is among the more generous but like Tobe said, without knowing your circumstances it's difficult to say.

    The rate you've been given seems okay, but again hard to know without knowing what else you have with them, LVR and so on.
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    1,165
    Location:
    Gold Coast
    Has your broker provided you with the answers to your questions?

    Typically, I find questions such as this come from a lack of trust, which often comes from a lack of interaction between broker and borrower.

    Tossing it back for a minute, what was your brief to the broker pls ?


    ta
    rolf
     
  5. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    1,167
    Location:
    Adelaide, SA
    CBA is a great lender to start an investment portfolio with - they have a policy set which is robust, flexible and whilst not catering to the bargain basement section of the market, are still reasonable on pricing.

    They also sit middle of the pack in terms of commissions. I wouldn't suggest there is anything nefarious behind the recommendation - more that they fit your needs and are Australia's biggest lender for a reason.
     
    Last edited: 22nd Oct, 2015
  6. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,100
    Location:
    Melbourne, Nationwide
    I can assure you that the CBA is a long way from the most generous in commissions.

    From a servicing perspective they do provide a reasonable starting point, but this really depends on the bigger picture of your overall finances. You can't really say that one bank is better than the others without putting it into better context. What's best for one person might not work for someone else and there's many reasons why that might be the case.
     
  7. devank

    devank Look, lets just get on with this, ok? Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    725
    Location:
    Inner West - Sydney
    Go with the bank which lets you borrow the least but lets you access equity easily.
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,773
    Location:
    Perth WA
    That's a great example of where the whole 'order of lenders' thing comes unstuck.

    If you do that, when the time to access the growth in your property it's highly likely you won't be able to service your equity release, especially if you've bought other property in the meantime, had kids, whatever. And if you've paid LMI, it's wasted when you need to move to a new more generous lender.

    First purchases, particularly the ones that use LMI, are generally best with reasonably generous lenders with good cash out policy.
     
  9. devank

    devank Look, lets just get on with this, ok? Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    725
    Location:
    Inner West - Sydney
    ehhh.... who are you going to go to when the generous bank says no?

    Here is one possible turn of events.
    Lets say ANZ says right now you can borrow 800K, NAB 1.2 Mil and AMP 2Mil.
    Year 0: First you go with ANZ.
    Year 2: Your salary & rent would increase. ANZ will let you borrow more close to a million.
    Access the equity. By this time NAB would give you another 800K
    Year 4: Have a baby. Now, go to AMP who takes 50% of liability and has better borrowing capacity calculations.
    But.. What do I know? I'm not a broker :)
     
  10. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,773
    Location:
    Perth WA
    If you were a broker you'd know that AMP's servicing sucks ;)

    First properties nearly always involve LMI. If you've bought at 90% LVR and hope to keep getting cash out to 90%, you aren't going to want to refinance out of your first lender as all that LMI will not only be wasted, but payable again on the new loan. That can be half a deposit in transaction costs that can be avoided by choosing the first lender a bit more wisely.

    Your first property (if chosen well) will be the biggest deposit-maker you have simply due to having the most time to appreciate in value. You don't want to cut it off at the knees by having to refinance it too often.

    It's only general and there's no one size fits all approach, but that's the way I tend to look at things.
     
    Chris_R and House like this.
  11. Redom

    Redom Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    859
    Location:
    Sydney (West) and Canberra
    CBA have a great policy set that makes them a stand out for brokers.

    As examples, their near market leading on:
    • Casual employment - they'll take 3 months and they allow you to use the HIGHER of certain income amounts (e.g. YTD, last 3 months, etc). This is very useful for different and varying income amounts.
    • Allowing most types of income into their servicing calculations - bonus/overtime/casual/commissions, etc. Discounted partially (new post APRA), but still very good.
    • Transparent and consistent policy - i love this. You know what you'll get. They take uncertainty away.
    • Allowing negative gearing. Its sensitised sure, but it helps compared to Westpac.
    • 95% investment loans - not many other than Liberty do this now.
    • expat LMI loans - all the way to 95%, no other bank will do it. Income calcs aren't great, list of currencies annoying, but their still great here.
    • Great 'common sense' approach to income calcs for varying income types - casual employment is the best example.
    • choice of valuation done by you - this is very important for 'flexibility'.
    • 80% COS - they won't need a val for 80% LVR purchases. Another awesome pro!
    • OTP vals - they'll let you take 12 months contract val, the process is annoying but you can get it done if you know how to.
    • Cash out policy is great! ANZ are better, but there's not many that are. I've done $800k cash outs with them with no questions asked.
    • Pricing tool is great - transparent again.
    I'm not sure commission even comes into it as a differential point - i think the majors roughly pay the same with ANZ being a little lower for higher LVR loans and NAB being much better in terms of trailing commission. CBA is pretty much in line with the standard offering and don't use commission offerings as a point of differentiation i don't believe.

    They have one of the better service offerings in the marketplace according to most awards.

    Policy + Service are there best strengths. Sure some will have bad experiences, but their the countries biggest bank, some will naturally dislike them and have horror stories.

    For an investment portfolio build, you really need can do far worse than go to them to start the journey.

    Their pricing isn't their strong point, but it isn't the worst at the moment either.

    Trust is the biggest issue in this industry - the best way to get around it is to communicate very clearly and back any recommendation up. Some will always be skeptical given that we're a commission paid business, but the best way to bridge the trust gap is being as transparent as possible and communicating/educating on choice.

    Cheers,
    Redom
     
    Last edited: 22nd Oct, 2015
    Sticky, MJS1034 and RM1827 like this.
  12. Redom

    Redom Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    859
    Location:
    Sydney (West) and Canberra
    The difference between generous and not so generous lenders for investors is largely in how do banks calculate your mortgage repayments with other banks. On that basis there are few generous banks out there still (NAB, Homeloans, Liberty, CBA to a less degree).

    You'd want to be careful going with them first IMO, but it would also depend on the necessity for equity releases to fund future purchases. If you can only fund future purchases with equity and you have the servicing to match, then going to a lender with exceptional cash out policy (e.g. ANZ) and increased chance of certainty may be a better fit. There's some considerations of future plans/goals, but the longer out you project the more uncertain it gets and getting the exact right lender for you today may not be the same case for you in 3 years time. Customers that went to Westpac for investment loans above 80 will appreciate that now!

    The 'you've paid LMI so you need to stay with them', while true, is a little risky in this environment too. Obtaining cash outs at 80%+ now can't really be factored in with certainty anymore - definitely not when you project that the cash out may happen in 12 months time. Its fraught with financing uncertainty and is very much subject to policy change from individual lenders given the environment. I'd caution most that are expecting to release equity at these LVRs with their current lender.
     
  13. Randy

    Randy Member

    Joined:
    21st Oct, 2015
    Posts:
    6
    Location:
    australia
    Hi Redom,
    • 80% COS - another awesome pro!
    what is that?
     
  14. Redom

    Redom Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    859
    Location:
    Sydney (West) and Canberra
    Sorry Randy - didn't explain that one well!

    Wont need a valuation at an 80% LVR for a purchase. They'll take the contract of sale + rental appraisal (if required) and skip the valuation altogether.

    Only a couple others do this too (e.g. ANZ).
     
  15. JuliaCFA

    JuliaCFA Member

    Joined:
    22nd Oct, 2015
    Posts:
    12
    Location:
    Melbourne
    Thanks everyone for your responses.
    Ok, if I understood correctly, CBA is among the most generous lenders and they allow most types of income into their servicing calculations. They have a good cash out policy. So I'll have a better chance of releasing the equity of this purchase later on and be able to service my equity release with them.
    ANZ seems a good bank as well. How does their offer in term of rate and product compare to CBA?
    I also heard that I should avoid cross-securitisation. So that means even if CBA is a great bank I should go to another bank for my next investments. Am I right?
     
  16. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,773
    Location:
    Perth WA
    Not necessarily. You can use the same lender without crossing securities.

    ANZ is much more conservative with their servicing but have an excellent cash out policy.
     
  17. devank

    devank Look, lets just get on with this, ok? Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    725
    Location:
    Inner West - Sydney
    That is my point. If you go with NAB first then it would be difficult to go to CBA due to their lower borrowing capacity calculations. So.. first finish with CBA. Leave NAB for later use.
     
  18. devank

    devank Look, lets just get on with this, ok? Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    725
    Location:
    Inner West - Sydney
    Isn't there a 'all monies clause'? Even if the loans are stand alone, the bank can touch other properties if all your mortgages are with the same bank.
     
  19. JuliaCFA

    JuliaCFA Member

    Joined:
    22nd Oct, 2015
    Posts:
    12
    Location:
    Melbourne
    Hi Jess,
    What do you mean by you can use the same lender without crossing securities?
    How do you do that?
     
  20. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,100
    Location:
    Melbourne, Nationwide
    You use an equity loan to realise the equity in property A as cash, which then becomes a cash deposit and purchase costs.
    You then get another loan for the remaining money needed to settle property B.

    The CBA isn't even close the the most generous lender.

    This isn't really about picking the best or worst servicing lender, it's about working out a balance and forward planning how that will affect what you can do 2, 3 or 4 purchases down the line. This requires good loan structuring, possibly good ownership structuring and an intimate knowledge of various lenders servicing criteria.