DTI?

This maybe a question for brokers or those who have purchased recently...

1. Can I confirm exactly how DTI is calculated by the banks. For eg, is rental income and dividend income included in the calculation? Do different lenders calculate DTI differently?

2. What bechmarks are lenders currently using on DTIs? Particularly the Big 4 banks vs other lenders

 

Don't worry about DTI, it's not the main metric for serviceability and is flexible based on the circumstances.

If you want to understand your borrowing power across different lenders, engage a broker who can calculate it property for you.

 

@Rolf Latham
Thanks, I did hear that some posters had DTI of 9x and were still getting finance

 

Ive been speaking directly to one of the Big 4 recently, and they have been reluctant to tell me the max I can borrow before they shut me off. Will speak to a broker

 

Big 4 banks have a hard limit of 7.
I mean through the normal channel.
Not your special clientele - high net-worth type.
Some broker can confirm this?

 

I'll say it again, don't worry about DTI. It's not the metric that stops most people.

Some lenders have limits between 6-9, others have exceptions based on the circumstances. For most people, the other metrics around cash flow will be the problem, not DTI.

Being able to make the so called "High net worth" policies work for you is more a function of structuring and LVR.

 

Could you expand on this Rolf
Doodad debt - I'm guessing this is personal debt?
By High reliance on variable income, is there a % of income that would trigger this?
By High LVR do you mean anything above 80%.

I'm guessing the answer will depend by financial institution.

 

How much deposit/asset can be classified as "high net worth"?

 

There's a saying, "If you have to ask, you probably can't afford it."

I believe the answer is 30% to 40% deposits. Probably an asset & track record position helps, along with an overall strategy and track record.

 

Thanks Peter.

Seems my net worth still can't make use of private banking facilities.

I am in a situation to explore how can I maximise my borrowing capacity with ~2m cash ready to invest and ~900k equity from my PPOR. My income is low so wanna see how could I build a portfolio from scratch with sustainable borrowing/growth. Any advise?

 

Is that 30-40% cash deposit- or could some of that be equity in other properties?

 

They're really the same thing, but if you have equity, you either need a borrowing strategy to release it as cash, or you cross securitised the properties.

 

DTI's will become an issue I beleive as APRA mandates lenders have < 6x for 90% of bank books.

 

Is this a requirement under APS 223? If so is it explicit or is that an implied interpretation/APRA using a stick?

 

No idea but APRA does seem to like to work with lenders behind the scenes.

DTI's were brought in a few years ago and initially had no effect on borrowing capacity as were set too high ie at 9 times income and a borrower would be caught by other servicing hurdles first.. I think the purpose of this was just to set the reporting framework with the intent to bring down over time. Now we are seeing DTI caps go from 8 to 7 to 6 which is starting to hit actual borrowing capacities in real world scenarios. Not all lenders are using DTI's yet but you have to wonder for how much longer they will hold out especially if ASIC loses their responsible lending oversight which looks likely. The other thing is if most lenders adopt it then the outliers / laggards end up getting more of the high DTI bushiness from brokers by default so they will be forced into adjusting policy to stop their books getting too loaded with highly leveraged borrowers. CBA and Westpac can probably absorb this as their books are so huge but smaller players wont be able to hold out too long.