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Borrowing capacity

Discussion in 'Property Finance' started by Elvis1, 9th Sep, 2016.

  1. Elvis1

    Elvis1 Active Member

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    Hi guys,

    I've just arrived love this site very informative .
    I'm kind of hit a wall at the moment with servicing , I have 3 properties one being an vacant block and the other 2 a unit in parramatta and a house with granny flat in Penrith.
    All 3 loans are with cba .
    My borrowing capacity is $125,000
    The advice I was given was that my next two properties should be double digit yielded to increase my borrowing capacity .
    Can somebody explain to me the ratio between income increases relative to borrowing captivity increase ??
    What I calculated with two high yielding properties was around an extra 7k per year .
    At the moment my portfolio before tax is costing me $100 a week.
     
  2. thatbum

    thatbum Well-Known Member

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    I think a very rough rule of thumb was 5 times your annual salary.

    Its a bit different for rental income though - bit tough (nearly impossible) to find properties that actually increase your serviceability after all costs and opportunity costs are factored in.
     
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Hiya

    Who provided the servicing assessment? If it was a banker - you might still have hope.

    Cheers

    Jamie
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If it was a CBA banker that would be odd, considering they cap yields @ 6% anyways!
    In reality, yields don't increase your servicing as much as changing lenders will. If you've been dealing with a CBA guy, chat with a broker and a whole world of new opportunity might await :)
     
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  5. Elvis1

    Elvis1 Active Member

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    My broker ,it's 145k sorry .
     
  6. Brady

    Brady Well-Known Member

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    Vacant blocks are a killer of servicing - similar to a PPOR

    No income coming in, no tax deductability.

    Have you looked into building on the vacant block?
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    It might pay to get a second opinion - I'm not sure who your broker is and they may be amazing, but not all brokers are created equal when it comes to investment lending and there may be some tricks you can use to increase servicing.

    Are you looking to buy a PPOR or an new IP?
     
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  8. albanga

    albanga Well-Known Member

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    That vacant block is not going to be doing much for your servicing.
    Can i ask why you have a vacant block of land? Do you plan to construct, develop?
     
  9. Redom

    Redom Mortgage Broker Business Member

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    On new borrowings, banks will calculate the additional expense you incur @7-7.5% P&I rates. Depending on the loan size this equates to double digit income yields to have your borrowing capacity remain unaffected by purchasing property. Obviously this is very difficult and near impossible on most ordinary properties.

    The upside is - if you switch lenders from CBA to another lender, all your existing debt that you have across your existing portfolio can be assessed far less harshly. This means switching lenders expands your borrowing capacity.

    Also as Brady mentioned, building on the vacant block may help - the additional income that you receive relative to the build construction cost can indeed service the new lend in some cases (ie additional rent/build loan can be a high figure that doesn't reduce capacity).
     
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  10. Elvis1

    Elvis1 Active Member

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    Yeah I have the rents are too low and rental vacancies are high , my first investment didn't know what I was doing and paying for it know.
    I didn't want to be stuck with costs to sustain the loan.
     
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  11. Elvis1

    Elvis1 Active Member

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    I'll describe my situation and if anyone can give advice that will be great .
    3 loans with Cba: 1- land $67000, I have a private rental contract for $200 a month .
    2- unit 402k owing with $450 rent and $3200 a year strata .
    3 -house and granny flat $610k owing with $710 rent , this one is fixed until October 2019 .
    My earnings are $90k with almost half overtime , employed 16 years . Monthly expenses $1500 plus staying with family to improve portfolio board $50per week. .
    Value of land is $45k
    Value of unit is $490k
    Value of house/granny flat is $700,
    I applied for a top up loan with cba and the servicability was not there , my broker doesn't agree but told be my borrowing capacity was $145k .
    That's when he assuming I could get a top up loan with cba buy double digit yield property to improve my borrowing capacity .
    I have learnt that the cba will on cal. 6% yield into servicing so I am confused what I should do to get out of this mess and keep moving forward .
     
  12. Elvis1

    Elvis1 Active Member

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    Can anybody provide a link to explain how cba calculate servicability and borrowing capacity so I can work this out myself
     
  13. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    As has been already suggested you could build on the vacant land and use future rental income to bolster servicing. Assuming its a spot you can easily rent? If not then consider selling it as this may also assist with borrowing capacity.

    As a very rough guide you need to increase income by 45k per annum in order to increase borrowing capacity by 1 mill.
     
  14. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Brokers have access to the actual calculator and banks being banks wont allow it to be distrubuted to the public. No offense meant here but its a tricky one to use as manual calcs are required plus a few other quirks.

    Complete a broker fact find with ALL info requested supplied and you can get a second opinion.

    As @Jess Peletier said we are not all created equal and many brokers will stick to one or two lenders as its a virtual info minefeild in broker land.
     
  15. Elvis1

    Elvis1 Active Member

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    What do think of my financial situation should I sell and start again or is there a way forward?
     
  16. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Not enough info and need to be careful about advising outside my professional jurisdiction, which is finance structuring :)
     
  17. Elvis1

    Elvis1 Active Member

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    All the loans are individual not crossed all in my name and the $610k loan is fixed until October 2019 all with cba .
     
  18. Elvis1

    Elvis1 Active Member

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    Do you think there is any truth to increasing my borrowing capacity by buying cash flow properties even if the bank caps it around 7%
     
  19. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Did your current broker just check servicing capacity with CBA?
     
  20. Elvis1

    Elvis1 Active Member

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    No , but he thinks it best for now to stay with cba as the big four give the highest valuations .
    s