Financially comfortable but can't get more finance and can't even refinance

I applied for a loan for my next investment property purchase but was knocked back due to serviceability issues.

Subsequently, I saw a lender offering a fantastic rate of 3.89% fixed for 3 years, interest only, and for investment. I applied to refinance my entire portfolio, but you guessed it, declined due to serviceability issues.

I've been comfortably servicing my portfolio for many years.

Each year, my salary and rents go up and this makes serviceability even easier in practice.

However, both lenders say post Royal Commission, they've had to really tighten things up and basically treat every applicant as an idiot or a fraud.

My serviceability is getting killed because they stress test at 7-8% on the loans and don't take 100% of my rents or tax deductions as income.

What can I do to get more finance? Is there a loan product for "sophisticated" investors who know what they're doing with their portfolio and finances?

A summary of my situation:

- Professional earning $200k+ a year. Full time employment with the same company for more than a decade.

- Portfolio of 7 investment properties with about $1.5M in equity.

- Overall portfolio is around 75% LVR and is cash flow positive.

- About $200k in cash savings and growing rapidly each month. One lender suggested I use these savings to pay out one of my investment loans and then they would give me another investment loan. Makes no sense from a tax perspective to do this.

- Live very frugally with no bad debts (no credit card debt, car loans, personal loans, no wife, no kids etc).

 

It is just a sign of the times. You will need to increase your income and decrease debt, especially non deductible debt.

 

This is all about providing 'good customer outcomes' - according to APRA

 

Have you spoken to a broker? There may be some things in your portfolio that can be optimised without refinancing, and there may also be options with some quirkier lenders to either refi and/or get more lending - however if low rate is your priority, it's probably not going to tick that box. It's not necessarily crazy high, but not super cheap either.

 

I don't have any non-deductible debt.

All my debt is "good" (tax deductible) debt.

The bank's solution was to either use my cash savings or sell a property or two to pay down some my good debt.

The bank's solution of course, makes no sense from a tax deductability perspective!

Why would I want to reduce my tax deductions and increase the tax I pay on the net rent?

 

I have written a thread in my strategies link in Sig about how holding large sums of cash can cost you money and hold you back.

Based on your last sentence it would appear you would prefer to keep your cash in a savings account rather than an offset?

 

Yes, I've spoken to a few brokers and they all tell me I've maxed out my serviceability, largely due to the stricter lending criteria the banks have recently put in place.

Even though in practice, I'm servicing the loans with ease, they say the bank's lending calculators assume worst case scenarios (8% stress testing, properties vacant for long periods, etc).

The rate on the next loan is not the most important thing. It's just getting the finance approved.

 

My cash savings are kept in an offset account to one of the investment loans. Makes more sense to have it offsetting 3.79% against a loan rather than earning 2.87% in a Ubank savings account, right?

It's more of a liquidity / rainy day thing in case multiple properties are simultaneously vacant.

 

Yes it does make sense. Even though it increases taxable income.

 

Have you explored buying at a lower LVR? The bank might not finance you at 80% LVR but may at 70%, or 60% or 50% LVR? Of course the numbers still need to work for you or there is no point but it's worth thinking about I guess.

 

hi @Terry_w , @Redom

just curious, Are banks already enforcing some kind of DTI caps for new loans?
read somewhere CBA was restricting it to 7x, and other banks soon to follow suit.

When CBA mentions DTI of 7x does it mean 'total debt (across loans) 2 income' cap of 7x?
i.e. a new borrower on 200k income can at max borrow 1.4mn of total debt across his portfolio irrespective of LVR?

 

That's not correct in my experience. At least some lenders count the rent from the new IP as income even if they shade it at 80%. Buying an IP increased your income and increases your max borrow, so LVR does matter.

 

When you apply, the banks will be testing for payment of P&I, not just IO.

Have you looked at your CF position if all your loans were P&I?

The lender that suggested you pay out one loan to get another has a different objective to you

 

Yep I missed that thanks,
So,
When CBA mentions DTI of 7x does it mean 'total debt (across loans) 2 income' cap of 7x?
i.e. a new borrower on 200k income can at max borrow =[ 1.4mn + 7*(capped total rental income) of total debt across his portfolio, right?

What role does lVR play? How is 80Lvr of total asset different to 60LVR in determining max borrowing??

 

Are all the different restrictions which constitutes the current credit environment, all part of BASEL IV preparations?

aka here to stay?


On a side not,
Do you think upcoming 'consolidated credit reporting' will have a further negative impact on some of the portfolio borrowers in addition to what already is?

 

@Rolf Latham highly appreciate your response,
I have just updated my earlier post with few more queries.