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Do assets assist serviceability?

Discussion in 'Property Finance' started by albanga, 5th Aug, 2015.

  1. albanga

    albanga Well-Known Member

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    Hi Brokers,
    I am curious to know, do your assets have any effect at all on serviceability (I think the answer is no) and if not then what do the lenders use them for in assessing your application?

    When I refer to assets I more mean cars, contents or that rare coin collection?

    For example say we have two identical incomes on paper with exactly the same expenses and liabilities, little savings.
    Person A owns outright a 1998 Honda Accord valued at 3k.
    Person B owns outright a 2015 Lexus valued at 120k.

    Will they lend more money to person B? I mean you would say person B is less a credit risk because if things went belly up they could sell their car but you could also argue they are even more a risk than A. Reason being if they have little savings then why are they spending 120k on a car?

    Sorry I know there are a few questions there rolled into one
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No. Only income is counted for serviceability.

    Assets are what the bank can grab when they sue you. The more assets you have the safer it is to lend.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Assets help strengthen an application. If you're 45 and you have nothing but a $3k car, lenders are going to raise eyebrows, where the same person with a $120k car with no debt shows a different story.

    It plays to the 'character' of the applicant. If you've got next to nothing, it can suggest you're not great at saving/repaying.
     
  4. albanga

    albanga Well-Known Member

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    Thanks Terry and Jess I was sure that would be the case. Let me throw a very hypothetical one out there. Say you sold your 200k coin collection and you insisted the buyer paid you over the course of 10 years in monthly payments.
    If you had this legally drawn up do you think the banks would accept the monthly $1666 as income.

    Oh and before you ask the only coins I have is $4 on my bedside table. Just having one of those brain working overtime mornings!
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    That is an installment contract. Not treated as income because it is return of capital.
     
  6. KDP

    KDP Well-Known Member

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    What about cash bond and annuities? I think @Rixter has mentioned using those to assist with serviceability.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Some banks used to take annuities as income, even though it is mainly the repayment of capital. But I don't know if this is still the case.
     
  8. Phil_22

    Phil_22 Well-Known Member

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    Yep this is the perfect response in relation to the way I asses assets in terms of personal lending at my work.

     
  9. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    It won't help with borrowing capacity.

    Jess makes a really good point though - it will likely assist in the way your application is credit scored.

    I guess you could liquidate assets - chip in a larger deposit and then require a smaller loan.

    Cheers

    Jamie
     
  10. thatbum

    thatbum Well-Known Member

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    Well that's awkward. I realised on my last finance application (IP 6/7) that apart from my IPs, my other assets are probably worth less than $5k. I don't see that situation changing anytime soon either! (I'm not really into having 'stuff')
     
  11. tobe

    tobe Well-Known Member

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    Banks don't see contents, coin collections or cars as 'assets'. If it doesn't put money in your pocket, or actually takes money out (as cars and home contents insurance does) its actually a liability. Your home is a liability in that sense.
     
    Hanison likes this.
  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Haha - I think 6 or 7 IP's will count as assets ;)
     
  13. Redom

    Redom Mortgage Broker Business Member

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    No they generally don't.

    But a creative little financial plan can easily turn assets into income streams that can be used. E.g. share dividends, etc. You'll generally need to provide 2 years tax returns to open up the lender pool though.
     
  14. tobe

    tobe Well-Known Member

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    I once got away with using 'deemed' income from an equity release. That is, I was able to use the deeming rate as income for serviceability for some of the equity I was drawing as cashout. It meant an extra $50k cashout at the time.

    Itd be difficult to do in the current environment Id think.
     
  15. HD_ACE

    HD_ACE Game-Changer Premium Member

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    Whats more favourable for credit scoring/ LMI or Dua.

    More cash and credit card debt or
    No credit card debt and less cash for example

    15k cc debt and 100k cash in offset
    Or 0 Cc debt but 15k limit and 85k cash at hand
    Or the same but lower cc limit to 5 or 10k.

    Not for servicability but more favourable for the likes or a cash out or high LVR loan.

    Thanks
     
  16. albanga

    albanga Well-Known Member

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    Pretty sure the banks calculate the credit card repayments at 3% of the limit. So I would be dropping the limit of my cards.
     
  17. tobe

    tobe Well-Known Member

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    Good question, flaky answer in afraid. A 'normal' amount is best. Credit debt isn't counted so much as credit limits. A credit card administered by the bank you are applying with can greatly help your credit score, if the card is kept in good conduct, no cash advances over limits etc.

    That said I've had a lot of applications crash applying to a bank with 'history' the client thought was ok but the credit score thought otherwise.

    What's normal for an investor with 2 or 3 investment properties? Perhaps two cards with a combined limit around the $20k mark? The amount of credit limit isn't near as important to credit score for an investor as it would be to a fhb with minimal deposit however.
     
    HD_ACE likes this.