Borrowing capacity and evidence of income

Discussion in 'Loans & Mortgage Brokers' started by ShopProp, 23rd Oct, 2019.

Join Australia's most dynamic and respected property investment community
  1. ShopProp

    ShopProp Member

    Joined:
    23rd Oct, 2019
    Posts:
    15
    Location:
    Melbourne
    Hello,

    Could someone please help me understand the mortgage approval process, I would really appreciate any information you can provide:

    1. To get a mortgage loan - what evidence of income is required to be shown for a self employed person?

    2. Under what circumstances can an individual obtain a 30 year mortgage loan of $1.8 million when he has a low income? In such cases will the bank still lend if this individual is able to provide a guarantor or does the bank rely solely on the borrowers ability to pay monthly instalments (almost $100,000 p.a.) ?

    3. If the guarantor is a company then does it have to be closely related to the borrower (i.e. he needs to show he own the company or is closely involved in its business activities?)

    Thanks very much for any advice.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,860
    Location:
    Australia wide
    1. 2 years tax returns of trusts/company as well as personal and ATO notice of assessments.

    2. none

    3. company guarantees would not be accepted generally. There are also legal and tax issues with a company giving a guarantee.
     
  3. ShopProp

    ShopProp Member

    Joined:
    23rd Oct, 2019
    Posts:
    15
    Location:
    Melbourne
    Sorry if I am repeating myself as it is very important for me to get it right.

    So you're saying that in all cases the borrower must show an income to get a mortgage loan of $1.8 million?

    Can I be absolutely sure of this requirement or do you think there could be exceptions to this rule?
     
  4. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    7,924
    Location:
    Australia
    Is low lvr asset based lending still available?

    Op, your better off just laying out your circumstances.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,860
    Location:
    Australia wide
    Yes

    Under the NCCP Act it is not possible to lend to a borrower who cannot afford to meet the payments and be able to demonstrate this.
    Read the act on the sections relating to responsible lending.
     
    significance likes this.
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,860
    Location:
    Australia wide
    Not unless very short term - I forget the number of days but a loan with repayment within a month or so might be possible.

    The NCCP Act doesn't apply to company borroweres though
     
  7. ShopProp

    ShopProp Member

    Joined:
    23rd Oct, 2019
    Posts:
    15
    Location:
    Melbourne
    Thank you very much Terry, you have been most helpful.

    Trainee, I will continue this in the legal section as a separate question.
     
  8. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    7,292
    Location:
    03 9877 3000
    Ultimately you need to demonstrate that you have enough income to repay the loan. How lenders qualify this is somewhat complex with a level of conservatism factored in, but affordability is the fundamental metric.

    If you can't afford the repay the loan, then you shouldn't borrow the money and lenders won't give it to you.
     
    Stoffo likes this.
  9. ShopProp

    ShopProp Member

    Joined:
    23rd Oct, 2019
    Posts:
    15
    Location:
    Melbourne
    Thank you Peter. I thought perhaps there are exceptions when a bank could lend such a high amount to an individual who claims he has no income.
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,860
    Location:
    Australia wide
    Low doc loans could still be an option in some cases - but you still need the income.
     
  11. ShopProp

    ShopProp Member

    Joined:
    23rd Oct, 2019
    Posts:
    15
    Location:
    Melbourne
    Great, so borrower's income is absolutely required to be shown. Could the bank rely on the guarantor's income instead of the borrower's and then approve this loan amount?
     
  12. Brady

    Brady Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,207
    Location:
    Adelaide, SA
    Servicing guarantor no. Unless related company.
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,860
    Location:
    Australia wide
    But the lenders will usually allow for a related company's income to be included in servicing without a guarantee - usually.
     
  14. Brady

    Brady Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,207
    Location:
    Adelaide, SA
    Agreed. That's what I said

     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,860
    Location:
    Australia wide
    But will they ask for a guarantee from the company?

    An example is a bucket company - where the individual not receiving any income themselves.
     
  16. Brady

    Brady Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,207
    Location:
    Adelaide, SA
    Not for resi.
     
    Terry_w likes this.
  17. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    7,292
    Location:
    03 9877 3000
    No. Lenders haven't accepted servicing guarantees since the GFC over 10 years ago. Even before then only a handful would allow it.

    The only exception is if you're purchasing through a company structure of some description. In that case they'll take guarantees from the directors.

    We recently had a Royal Commission into banking. One of the reasons for this is lenders were accused of lending money to people who couldn't afford the loan. This is costing the banks billions in penalties. You're saying that you'd like to borrow money, but you personally can't afford it. Consider how this looks to the banks in the current environment.

    Here's what you can do about it...
    * Speak with a mortgage broker, understand what your borrowing power really is, not what you think it might be or what an (unreliable) online calculator tells you.
    * Earn more money and declare it on your tax return. Lenders measure how much you make by reviewing your tax returns.
    * Adjust your plans to borrow what you can afford.
     
    Brady likes this.
  18. ShopProp

    ShopProp Member

    Joined:
    23rd Oct, 2019
    Posts:
    15
    Location:
    Melbourne
    Sorry, I don't know how to quote as I am new to this forum.

    Peter, this is about the husband (soon to be ex) who has taken a huge loan (1.8m) in his personal name and purchased a dilapidated property a few months after separation (this is in April of this year). He has claimed that he has no income and his tax returns also shows the same. The previous lawyer did not seem to consider this important.
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,860
    Location:
    Australia wide
    Is he the sole owner or a trustee owner?
     
  20. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    7,924
    Location:
    Australia
    How did he get the loan? How is he making payments?
     

It seems that the levelling out of property price rises hasn’t deterred celebrities from investment properties. Nicole has bought her fifth apartment in a complex in Milsons Point in Sydney. This article explains why she may have done that.