Changes in the air - ANZ, Westpac et al

ANZ has just announced they'll only be accepting 75% of rental income now, down from 80% and likewise will be introducing the scaled living expenses model that most lenders are moving towards.

Further fiddling of the margins by the banks.

 

Always on top of your game. Any word on WBC / CBA following?

 

Glad I maxed out while I could! Time to focus on the business now and let property investing take the back seat for awhile.

 

Both have introduced the scaled living expense calculations - which has seen a further squeeze of borrowing capacity. CBA whilst not incredibly aggressive in their policy, was able to weather it reasonably well to still remain a good contender.

ANZ on the other hand, this tips them into the pile of lenders which have limited use for investors unfortunately - which is a pity considering their niches.

 

That news is not great. There have been reports of falling rents in some markets, perhaps this is the response?

Do the banks have separate variables in their calculators for IP maintenance expenses, strata, etc? Or are they using the reduced rental income figure as a blunt instrument for factoring in holding costs?

 

I heard that APRA is encouraging all lenders to sliding scale living expenses by 1 April

 

What is sliding scale?

 

The more you earn, the higher is the minimum living expenses figure used to calculate your borrowing capacity.

 

I think most major's will follow on suite, I think WTC will advertise this shortly.

 

So I believe this is rental income as well?

 

Cue @Terry_w "Can it get any worse"

 

Its going to get worse!

 

I'm ok with this. But the downside for investors in Brisbane and Gold Coast is that buyers in Sydney and Melb can come in and buy with equity based on the big price increases they had on essier borrowing rates in their own cities which may price out investors just getting into the market. Kind of sucks for locals and the rich get richer ...

 

The changes aren't to do with equity, but serviceability. Essentially ANZ is saying they'll only accept 75% of the rental income received from investment properties, down from 80%. No amount of equity will save you from serviceability constraints.

 

So what would a 5% decrease in rental income mean in real terms to a borrower?

 

Not surprising really. My own estimates put the holding costs closer to 30%.

Think about it, in really rough figures (thinking about one of my properties that gets $500/wk rent)...

Property management - 7.7% is equivalent to 4 weeks / year.
Letting fees - 1.5 weeks rent every 2 years (average 0.75 weeks / year).
Vacancy - assume 3 weeks every 2 years (average 1.5 weeks / year).
Body corporate - 0 to 4 weeks / year, call it 2 weeks.
Land tax - sometimes nothing, sometimes 2 weeks rent, call it 1 week.
Council rates - 3 weeks rent per year.
Water rates - 2 weeks rent per year.
Basic maintenance - 3 weeks rent per year.
Cosmetic reno - Say $5k every 10 years. Comes to about 1 week / year.

This comes to about 18.25 weeks rent for the year goes straight into holding costs. There's a lot of scope for variance but it would be somewhere between 15 - 20 weeks rent for most properties. Equates to 28.8% - 38.5%.

 

Another reason why ANZ isn't my preferred lender

 

Generalizing a bit? They filled a specific need.

 

Not generalising.. giving my opinion