Deposit for 2nd Investment Property

In the process of trying to raise a Deposit using Cash Savings+Equity in PPOR+Equity in 1st IP.
I am with one of the Big 4 for my PPOR and 1st Investment Property. Looking at a Total deposit of 100k.I have about 50k in Cash savings and have managed to release 30K in Cash Equity from my PPOR through my Broker.
I then approached my Bank directly for releasing Equity in the IP of about $30k at 80% lend and they are saying that they will require a signed contract.I had purchased the property last year at 90% lend and there is already LMI paid at the time.But has appreciated around 150k .

Is this normal ?What if I use it for renovations,Do i need to provide a quote for repairs to release the amount.

 

This is a major reason why using a strategic investment savvy broker is SO important!
Some banks have cash out policies that simply aren't conducive to growing a portfolio - and if you've paid LMI, you're stuck with them unless you're willing to pay LMI again to move.

What you need to present to the bank to get your cash out will depend on the banks policies.

 

Interested to know why you didn't ask you broker about the IP equity release?
Have you had an bank valuation completed for the IP? If not, what are you basing the $150K increase in value on?

Normal if you are over 80% LVR, not normal if the LVR is 80% or less.
For $30K cash out you should not have to provide quotes for non-structural renovations , most lenders will release funds without evidence required up to $50K some $100K or less BUT it depends on the LVR and the lender policy.
What lender is the IP with currently?

 

Hi Jess ,When i first started out i was just poking around and ended up buying my first IP .Since then have been reading up and educating myself.You correct and its important to choose an Investment savvy broker.

 

Yes my existing bank carried out the Valuation .Valued at $680k and outstanding loan amount is $505k

 

The lender is Westpac and they are insisting that I must have a signed contract or Pre approval from them.They will then Approve the equity release and at the same time Lend the 90% deposit required for IP2.
My broker advised me to Refinance with CBA and that they would lend upto 90% equity without any issues.This would mean 2 sets of charges and me being locked in with clawback fees for the next couple of years.
Thats why i approached Westpac directly.

 

This bit makes no sense, what charges are you talking about? discharge fees and registration charges?
What clawback fees? Brokers are no longer charging them to clients, since 1st of Jan this year this was no longer allowed. Brokers still get clawback but cannot pass the costs onto the client.

It is strange that Westpac are even asking for this as I know I've done cash out/equity releases with them for up to $100K with no need for any evidence what the funds would be used for.
I would be leaving them for another lender that won't make your life so hard, this will always be an issue if you're trying to buy more IP's.
I would go back to your broker and give them the whole story, going direct is rarely in your best interest, as evidenced by this experience. It's even possible that the Broker could get the $30K equity release from Westpac without requiring evidence.

Also make sure you're not cross securing your properties.

 

Just a quick Brief.I am a high income earner and my gross is 200k pus per year.
December 2020
I had an existing PPOR HL from 2017 through Westpac and had a bit of equity build up and cash saved. Approached westpac directly last year as i was looking at buying an IP but they were hell bent on cross collaterizing both the properties. Approached a Mortgage Broker and they had a look around and Lo and behold managed to secure the Equity release and IP1 loan through Westpac itself.Basically Westpac ticked all the boxes and were happy to lend.
Over the last couple of years have noticed the shift in attitude as am assuming Bank employees are no longer receiving commissions.
The Clawback fees were around $3300 for the IP1 and $500 for PPOR equity release loans charged to the bank.If i moved from Westpac before 2 years I had to pay back 100% in the first year and 50% in the 2nd year.Was aware of this and it was the cost of doing business.

July 2021
Fast forward 10 months did not expect the property to increase in value so fast so was looking for IP2.
Approached Westpac Local branch again and presented my case of using cash and Equity from IP1 and that i was looking at a Pre Approval of 700K.
Once again Approached the Same Finance manger ,Her approach was to try and structure the Loan so that both the properties were Cross Collaterised, i.e IP1 and IP2.Once again decided to use a MB.

Broker looked around and said that my option was CBA.Plan was to refinance the IP1 loan to CBA and borrow 90% .At the same time CBA would also give me a Pre Approval for $800k.

Basically as i was refinancing under 1 year the whole cost of $3300 for IP1 would be recovered from me .(They agreed to waive some of it off)
There would be another set of charges for IP1 refinance from Westpac to CBA and also for the CBA IP2 90% lend.( $3600 + $4200)
Of course charged to the bank but then i was once again losing flexibility for the next 2 years to Pick and choose an appropriate lender.

 

The Funny part is that i was able to get an Equity release loan 80% LVR for my PPOR through my broker no questions asked but when I approached Westpac directly for the same 80% lend for my IP1 they said it cannot be done due to their Responsible lending policy.
When i questioned this she said she was unable to explain it.
Am i missing some thing or are the Local branch HL advisers or Managers driving customers to MB

 

I have now approached CBA directly as I am keen to get away from westpac .I even called Westpac directly a week ago and have still not had a call back from them as i am looking to talk to their Lending team directly.

I informed my broker that I was not happy with the charges and was gonna refinance and deal with CBA directly ,They were not happy and are now threatning me with charges for Advice.I said that was happy to pay as long as they were reasonable but they are not giving me a figure even after repeated emails.
What a mess.

 

what charges are these?

 

There would be another set of charges for IP1 refinance from Westpac to CBA and also for the CBA IP2 90% lend.( $3600 + $4200)
Of course charged to the bank but then i was once again losing flexibility for the next 2 years to Pick and choose an appropriate lender.

 

Exit fees in fixed loans or lmi etc?

 

What are these charges specifically?
Clawback fees or something else?

 

Yes they are clawback fees paid to the broker by the bank.If i go through a broker there is clause that i have to stay with the bank for 2 years.If i approach a bank directly then in 6-12 months i can refinance to another bank if i see the need.

 

That is incorrect - There is no clause saying you must stay with a certain lender, on one can enforce that, it's not against the law to move within two years.
It's purely your broker's own policy and as I mentioned in a previous post, the rules changed around charging clients clawback - depending on your broker's Licensee.

 

No.
Paid by the broker to the bank!

There is no such clause. if you entered a specific contract with the broker there is also unlikely to be such a clause. You would have likely agreed to reimburse them a fee if you discharge your loan with the bank

 

That was my first time with the broker and I was under the impression that it was standard practice.Yes i signed the contract .It does not say i cannot move but it does say that if I Refinance to another bank or discharge my loan I have to pay 100% of the fee back under a year or 50% after 1 year.

 

Used to be standard practice, as I've said, rules changed regarding clawbacks on 1 Jan this year, regardless of when you signed the Clawback agreement.
Even if you get the new loans through your broker are they still going to try to charge you the clawback? They will receive new commission from the refinances.

 

I wouldn't say it was standard practice. Whilst many brokers did charge a clawback fee, there's also a lot that didn't. From what I understand it was also very difficult to enforce.

Also a lot of brokers will willing to negotiate or waive the fee if you were refinancing the loan through them with a good reason.

It's a moot point these days. Brokers can't charge a clawback fee, or any other sort of fee than even looks like a clawback (no upfront fee with a refund later, etc).