Borrowing Capacity?

Discussion in 'Property Finance' started by Rex, 5th Dec, 2018.

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  1. Rex

    Rex Well-Known Member

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    Hopefully this sort of thread is not too much of a nuisance, mods please delete if not allowed.

    I have spoken to my usual broker, and am surprised at how low they say my borrowing power now is, even considering the current lending climate. I know there are a lot of savvy brokers on here - could any give a second opinion / sanity check to the below scenario? What's the most I could likely borrow and which lenders would be most favourable to the circumstances? Not keen on non-bank lenders like Pepper, Liberty etc.
    • Loan would be for a PPOR purchase
    • One applicant
    • One dependant partner (wife)
    • Single income with base salary $92K pre tax / $62,600 after tax and HELP repayments
    • $18,200 p.a. gross rental income / $16,400 p.a. after management fees
    • $345K balance of loan owing on an IP, currently paying P&I repayments $1,900/month (will keep this loan and not refinance it)
    • $2,000/month 'actual' living expenses
    • New loan to be 90% LVR
    Thanks in advance
     
  2. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    off the top of my head - approx $300k
     
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  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    I haven't crunched the numbers - but I wouldn't be surprised if your borrowing capacity is limited due to the single income and existing IP debt.

    The existing IP debt will be calculated at a high assessment rate if you're not keen on smaller/non bank lenders.

    Liberty won't be an option due to LVR exceeding 80%

    Pepper/homeloans could be a goer if LVR is 90% incl of LMI. They're calc is pretty generous.

    Cheers

    Jamie
     
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  4. Lindsay_W

    Lindsay_W Well-Known Member

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    How much did your broker tell you you could borrow?
    What lender did they run their servicing with?
    Why are you "not keen on non-bank lenders" they generally have more generous servicing calculators than the majors, beggars can't be choosers :)
     
    Last edited: 5th Dec, 2018
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    because ?

    ta

    rolf
     
  6. Rex

    Rex Well-Known Member

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    Thanks guys for the responses.
    $180K was the limit supposedly, I believe that was with CBA but he looked at several lenders (not sure which exactly). Looking to get that sanity checked before I give up on three idea of making a purchase.
    Only hesitant about the non bank lenders because their rates are usually higher (correct me if I'm wrong?). Beggars can't be choosers, but I'm not desperate. Would only make the purchase if it makes financial sense, ideally sub 4.5% rate.

    Would if I could but have negligible equity in that property. Such is the Perth market...

    @Terry_w $300K sounds a bit more refreshing. Would this be with competitive lenders?
     
  7. Lindsay_W

    Lindsay_W Well-Known Member

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    If you had to choose between;
    1) More borrowing capacity but higher rate or
    2) less borrowing capacity and lower rate
    Which would you prefer?
    Some of the non-bank lenders have very competitive rates, might be worth asking your broker what your borrowing capacity is with the top 5 - 10 lenders, serviceability wise, then work backwards from there in regards to rate?
     
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  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Which lender is your INV loan with? If you change it to IO, your borrowing capacity will be much higher. 90% LVR is your main issue, that limits your already limited options :) Under 80% gives more lender options and also better pricing.

    If deposit is the issue, changing your existing loan to IO will allow you to save the cashflow and increase your deposit faster.
     
  9. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    This was just off a mental calculation - it could apply to any lender, if it is correct, but if your broker is saying much lower then perhaps it isn't correct.
     
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  10. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    The CBA tends to be more generous than most lenders. If you're being quoted $180k as the upper limit, then you're probably not going to get much more out of other lenders unfortunately.

    By all means get a second opinion, but your broker certainly knows more about you than what you've disclosed here, so their opinion is probably going to be more accurate than what you'll get in a general post on a public forum.
     
  11. George Poullos

    George Poullos Finance Strategist Business Member

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    It's never going to be accurate trying to work out your capacity by asking on a forum. The process is far more detailed than that.

    That said, in my opinion your broker is probably correct. CBA do have a generous calculator but you are also in a household with one income earner, at least one dependent & HELP debt (this one really hurts serviceability regardless of the actual debt amount & gets worse the higher your income).
     
  12. Rex

    Rex Well-Known Member

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    Thanks all for the help.
     
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  13. Jason Tyrrell

    Jason Tyrrell Well-Known Member

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    CBA will have HELP debt at 8% of $110k, or almost $750 per mth which is quite a drag on borrowing capacity. Rental income added on for HELP.
    All crunches to the bottom line - what should be $300k plus may only be $180k.
     
  14. Rex

    Rex Well-Known Member

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    So they don't factor the fact that negative gearing makes the rental income tax / HELP repayment free? That's probably the problem then :/
     
  15. Jason Tyrrell

    Jason Tyrrell Well-Known Member

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    Nope. It may not be $110k all up as 80% of rental used. But same applies, negative gearing irrelevant, unfortunately, to the servicing of the HELP debt.
     
    Last edited: 7th Dec, 2018
  16. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Isn't negative gearing added back for HECS and tax purposes?
     
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  17. Jason Tyrrell

    Jason Tyrrell Well-Known Member

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    Below is from CommBroker. In the example it wouldn't matter if the rental property was geared to the eyeballs or unencumbered. HELP is payed on $70,000, when this person's taxable income may only be $45,000:

    The HECS/HELP repayment is calculated on the Gross Annual Eligible Income used for servicing.

    Example

    If an applicant's assessed income for servicing is $70,000 per annum.

    Income type Gross Annual Eligible income for servicing
    PAYG Base $50,000
    PAYG Bonus $8,000 ($10,000 x 80%)
    Rental $12,000 ($15,000 x 80%)
    Total income $70,000
    then applicable rate is 5.00% and the monthly HECS / HELP repayment is calculated as:

    $70,000 x 0.05 / 12 = $291.67 per month.
     
  18. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Hi Jason

    I was referring to the tax treatment. Rex seems to think he may not pay HECS if his taxable income drops below the threshold because of negative gearing, but I don't think this is the case.

    It seems the bank may recognise this.
     
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  19. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Looks correct to me. HELP repayments are based on adjusted taxable income so things like fringe benefits, extra super and rental losses can make it worse (than expected). The taxable income can be under the repayment threshold but the ATI (bank has called it GAE income) bank seems to have assessed it correctly

    Only issue is - Have they allowed the rental deductions? I assume net rents are $12K cashflow positive and they allow 80%
     
  20. Jason Tyrrell

    Jason Tyrrell Well-Known Member

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    Yep Terry. Quite severe when someone may only have $10k in HECS/HELP left and have $700/m in servicing.

    At least with eligibility tests for HECs, MLS etc the actual negative gearing is added back on.
    So back to the status quo.

    A neutrally geared property has no impact with the ATO for HECS. As nothing to add back.
    But for the serviceability calculator it cranks up the repayments by adding on the rental income.
     
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