Borrowing with NRAS Properties

Hello,

Just after any insight about borrowing when you have NRAS properties.

Do they count the 10k PA tax free as incomes?

If not do they count the full rent or the discounted rent?

How does this work when getting a loan for an NRAS property vs having an NRAS property and getting a loan for another property (using NRAS income).

Cheers

 

Depends on the lender

 

NRAS hursts borrowing capacity with the majority of lenders. 70-80% of the discounted rent is taken.

Overall this is not the most substantial impact, given they are new properties and the discounted yield is still reasonable.

Most lenders wont take the NRAS credits into account given they begin to expire soon for a lot of NRAS stock.

 

Thanks for your replies.

Do many lenders take the undiscounted rent as I would think having an extra 20%+ deducted off your rent can make a difference if have multiple NRAS.

Lender logic - Wont take NRAS credits because they expire in x years!! Wont take the rent the properties will earn post NRAS because you are currently forced to charge less (so u can get $10k off NRAS)?? Surely its not that hard for lenders to get their head around this.

 

Firstmac and Adelaide banks ( via wholesale channel only ) used to take the NRAS credit as untaxed allowable income - Firstmac took it on all NRAS security as long as the provider was on the approved list . Supercharged borrowing capacity . Adelaide took it via wholesale channel only , and only on houses and townhouses . But neither policy survived APRA servicing calcs changed in 2016 . I know this because I’m the guy that built the product and policy at Firstmac many years ago , when I worked there.

Other lenders have never used the NRAS credits as income for serving , other than on a discretionary basis if you got very lucky

you will find most lenders take 65% of gross rent .ie 80% of 80% , rounded up .

The impact of reduced rent on serviceability is relatively modest - and If you have been reinvesting the annual surpluses to reduce debt , you should be seeing that impact more than compensated for .

small number of the NRAS properties start to reach their 10 year eligibility this year and next . 2023,2024 are where the majority expire , with the last few thousand rolling out to 2026

 

Thanks for the reply but i disagree it doesnt make much difference. The double rent discount starts to become an issue when you have a number of NRAS properties. For every 5 NRAS its like you miss the rent for a whole property

The other side is i would think most people (on propertychat not the general public) would sensibly pump the money into an offset account rather than paying off and closing (or permanently reducing credit limit) a loan. If you do this my understanding is the bank counts the loan as fully drawn and the $100, 200, 500k you have in you offset counts for nothing (to the bank), same if you have redraw available on a loan.

Lenders need to step up and take the full market rent for NRAS but doubt that will happen especially as the program is on the way out

How much hardship have these 'responsible' lending laws caused due to people not being able to refinance, forced into higher rates and large P&I payments on investments. How is it responsible to not allow people to refinance if they aren't borrowing more money?

 

Don't forget you cannot claim all the interest on a loan used to acquire an NRAS property. This in turn should affect servicing slightly, but it is unlikely that the bank would know this.

 

Whether you have NRAS properties or not, if you want to improve your borrowing capacity - pay down debt. Don't offset debt . If you arent doing that, you have chosen a path that hinders rather than helps you in a post APRA world.

responsible lending laws are often confused for being more influentiual than they actually are; they are the domain of ASIC and they are not what has affected your borrowing capacity in a material way. APRA's guidance around sensitised assessment rates and the treatment of IO debt is what has really caused the issues you are encountering.

I'm aware of how it all goes together... I have 15 of them and organised finance on over 350 of them

Believe me when I say that if you had retired debt instead of offsetting it, you'd be in an improved borrowing capacity position. The gap between 80% of rent accepted for servicing and 65% of rent accepted for servicing is 15%. You would need almost @ 7 NRAS properties to lose the rent of 1 property . But if you had 7 NRAS properties and had extracted and reinvested the 56K or so per annum ( Im assuming a NET of 8K per property ) in debt reduction rather than debt offsetting over 5 years you would have retired 280K of debt and if extrapolated to 10 years it would be @560K .
Some lenders now accept only 70% of rent anyway so the gap would become 5% effectively, requiring 20 properties to lose the rental difference. In those circustances you'd have been generating 160K net per annum ( again, based on 8K per dwelling) and would have retired 800K over 5 years and 1.6 Million over 10 years.

When considering these arguments, you have to appreciate the value of compounding debt reduction that extra repayments can provide over time . It is never as simple as 80% rent v 65% rent .

But yes, it would be nice if firstmac reintroduced their policy of accepting 100% of the NRAS credit as untaxed income for servicing .....

 

If you pay down (and reduce available limit) on your loan you lose all future deductibility against that property Say if you want to use the money for a PPOR or new car/holiday whatever it wont be deductible.

The idea of refinancing is to stop making payments of $2k p/m with only $300 interest on 15YO P&I loans and hold on to more of your cash If you choose to pay them down defeats the purpose.

Seems like an option of the last resort, perhaps if you have a lender ripping you with a really high rate but most have a good fixed rate at the moment even if the variable is crap. Also good if you want to buy a new place and get a new loan I suppose.

 

not necessarily. You could borrow against other property to 'refinance' this debt without paying it off and this could be done in a way that slows the repayments.

 

Pay off your PPOR loan then redraw to pay off the loan on the investment property? Good idea for most, some people are lucky and all their debt is tax deductible though

 

I didn't have that in mind, but borrowing against other non-NRAS properties (assuming you have serviceability problems because of the NRAS and you have other property with equity).