Best Banks for building base finance for newbs?

I work with a lot of guys in their 20's who will often come to me asking for advice on how to get a start in property. None for IP's, yet.

So my question is who would be a good bank to build a base with for FHB's? Obviously there would be several good ones. But as an ongoing thing buying an IP every couple of years when affordable, who would be a good starter for them to pile their savings into to build a Savings History to get started on their journey young?

 

It depends on their goals, so i'm going to assume they'd like to grow a portfolio eventually. Their income is a factor and whether they're paying LMI. Assuming they are paying LMI, CBA is a good start and if they're on a decent income that's going to get significantly higher, ANZ can be good too - they have a very good cash out policy but you need the high income to make it worthwhile longer term.

 

We stuck with CBA as much as possible solely due to their excellent internet banking interface. Starting out it allowed us to keep a close eye on our financial position and kept the motivation up when we looked back to see how much we had put into offset.

We have moved our loans away from them now to places with lower interest rates.

 

Thanks @Jess Peletier

I thought CBA would be a solid choice. It's automotive industry in QLD so high income is out. FHOG and LMI are in. One or two have the drive to grow a portfolio, the others are scared of the debt and will most be most likely to stop at PPOR.

 

The ANZ and CBA have excellent cash out policies, but their serviceability is pretty bad these days. Westpac is even worse in some circumstances.

Right now, I wouldn't bother with the ANZ at all, they're not doing anything useful in any particular regard unless you're placed in one of their niches.

The CBA are good if you're starting with a high LVR. They'll still allow reasonable access to equity above 80% which might get someone into a second and possibly a third property faster than most other lenders. Unfortunately most people run out of servicing very quickly these days so in many cases they're not going to be viable over the long term for anything other than 'set and forget'.

At this point people need to accept they'll probably be restricted to 80% LVR for equity releases. There's a few second tier lenders that fit better than the majors.

Finally you'd probably end up with the NAB and one or two non-conforming lenders when servicing is maxing out. Beyond that you need to have debt reduction and income generating strategies in place to keep going.

The best strategy to follow really depends on the persons resources right from the start. The path outlined above is probably best for someone with modest deposits at the beginning and a reasonable income. Someone with higher deposits and modest income might simply go straight to the end. If you've got a very higher income (and most don't), a more in depth pathway might be appropriate.

No simple answers here unfortunately. The gap between the lower and higher end servicing for investors has only widened (quite significantly) in the last few months. Overall though the limits have dropped by a huge amount.

 

It's impossible to answer - everyone's situation is different.

As a general rule - the majors are usually pretty good to start with - and I tend to use Cba quite a bit. Less rigid policies and less issues with cash-outs.

Cheers

Jamie

 

Thanks Peter and Jamie.

Yes everyone is different. So are their circumstances. For a beginner CBA seems to have the biggest brush to tar with.

I personally started with CBA last decade and have been through a stage with ANZ also. Of the two I found CBA easier to deal with to the point of giving them another spin this year.

 

I like ANZ early on. ANZ do up to 97% for customers with existing credit facility>6 months for owner occupied. Rates are crap, but considering they price based on loan amount an LVR, at high LVR's for first home buyers they are not that bad as most banks pricing is pretty terrible above 90% anyway.

What works well is that ANZ allow 97% even for cash out for existing customers so a person may have paid 15k in LMI originally for a 97% loan, and the property has appreciated in value and LVR is now 90%. Under ANZ policy, you can potentially cash out back up to 97% and utilise the lmi credits you previously paid.

For example, had a client who had an existing loan with ANZ of $282k and property was valued at $360k. Was seeking a loan for $338k (plus cap lmi which should have been a 97% lend, however, she must have paid LMI already when she first took out her loan so she ended up only having to pay $1800 to draw out ~$55k in equity. The LVR after the additional $1800 in LMI ended up to be around 94%. Could have gone higher, but $55K was enough in her case.

Most banks only allow for cash out for existing customers and refinances at 90% plus cap (~92%) so you really need to wait a while to build up equity before seeking a top up.

In addition, ANZ's cash out is very good and I have had no issues cashing out at 97% when I needed to.

People always say ANZ's servicing is crap, but they are actually one of the more generous lenders early on as their living expenses is quite low compared to others. For example, ran a scenario for a client and ANZ could lend $460k vs $425k with BOM/CBA.

Its only when you start having multiple properties that they become pretty crap at servicing as there negative gearing is not particularly good.

Haven't done one for a while but I am pretty sure they still allow for 97% refinances and top ups as long as you are an existing customer with credit facility.

 

Indeed Rolf.

But sometimes, no offence, even brokers require guidance.

 

Agreed.

I'm by no means a mentor. I'll always ask them to seek the advice of a broker first and foremost so they know what they can do and form a course of action from there. Getting the motivation to get off the rental merry-go-round is the hardest thing to overcome.

 

To break down the question a little bit - it comes down to what FHB who intend on building a portfolio need. Assuming the wealth accumulation/portfolio building is a goal, they'll likely need a lender with:

1. Ease of access to funds/equity - this includes both policy and valuations. Having access to more valuation techniques can directly increase the amount of equity available to play with.

2. Access to cash at different LVRs - in this environment its not easy relying on a 90% equity release with any funder, some are better than others, but this environment is uncertain and will change over time. Its reasonable to plan for an 80% release over time, and if possible, give yourself an increased chance of doing it at 90 by select lender choice.

3. Rates/fees/products - you obviously don't want to be paying more than you have to. While rate isn't the make or break to achieving the larger goals, every bit helps.

4. Lender selection and serviceability - it definitely makes sense to have a couple lenders available to you later on, so you can knock out a couple of lenders to use for a first timer.

5. Flexibility - for things like I/O extensions, equity releases, splits, future servicing, etc.

Of these, the exact lender choice does change over time - it isn't static. The consistent performers are indeed the majors here.

With ANZ you likely increase the chance of doing a higher LVR cash-out. CBA are my favourite given their policy suite IMO is the most flexible, valuation tools are good, current pricing is great, service is market leading, etc. Westpac/Dragon are pretty similar too.

So it often comes down to the product offering at a particular point in time with each of these lenders - given their all reasonably suitable for someone with those goals at that point of accumulation.

It does makes sense to leave NAB funded products to later in the acquisition stage - simply because they treat mortgage debt considerably more lighter than the others. They will load your expenses less, and over time, as the FHB flourishes into property investor, they will typically have more debt. NAB treat this expense lower than the others, hence your borrowing power is greater with them down the track. You lose this benefit if you go with them early as they need to load their own debt higher.

Cheers,
Redom

 

How does it work when you get to this stage and you need access to equity from existing properties which have been financed with 'less generous' lenders?

 

Thanks @Redom

Invaluable infoformation as usual.

 

That's why it's important to not use super stingy lenders for your very first, especially when using LMI as you won't be able to access the equity down the track.