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

Discussion in 'Property Finance' started by Bruce Lee, 14th Nov, 2018.

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  1. Bruce Lee

    Bruce Lee Member

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    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).
     
  2. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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

    Lindsay_W Well-Known Member

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    This is all about providing 'good customer outcomes' - according to APRA
     
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  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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.
     
  5. Bruce Lee

    Bruce Lee Member

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    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?
     
  6. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    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?
     
  7. Bruce Lee

    Bruce Lee Member

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    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.
     
  8. Bruce Lee

    Bruce Lee Member

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    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.
     
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  9. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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

    Perthguy Well-Known Member

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    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.
     
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  11. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    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?
     
    Last edited: 15th Nov, 2018
  12. Perthguy

    Perthguy Well-Known Member

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    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.
     
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  13. qak

    qak Well-Known Member

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    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 ;)
     
  14. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    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??
     
    Last edited: 15th Nov, 2018
  15. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    DTR is fluff

    Its a catch all in those rare scenarios when a deal might get through the DSR and Net cash flow gates

    WIth CBA and NAB and a couple of others, their rental caps ( 6 and 8 % respectively I think) mean that a borrower cant get through the first 2 gates, and be stopped at the third

    Its another APG 223 prescriptive tool to make sure that borrowers dont become systemic multiple fall over risk, but again, I believe this is more around BASEL IV preparations

    ta
    rolf
     
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  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    How many enquiries do you have on your Credit file in the last 18 mths :)

    Most brokers are highly efficient at eeking out a living from loans that are hard to place.

    So if you spoke to an average mix of lenders , and the DEMONSTRATED that you didnt have the income to service the exising / and new debt, it seems to make little sense to thence chase rate, when one would know that the chance of an approval is slim.

    There is almost always a way, but throwing mud at the wall, and not knowing how that lender will do serivivng is counter productive for all - but mostly the borrower......

    ta
    rolf
     
  17. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    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?
     
    Last edited: 15th Nov, 2018
  18. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    indeed.

    DTI even in the heady days of 2.5 x optimised exposure was rare that someone would buts 7 to 8


    ta
    rolf
     
  19. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    no, i dont believe that.

    It wil do the opposite longer term, since we will be able to price rate for risk, similarly to fully underwritten life insurance now. Doesnt mean credit will be excluded from the majpority of borrowers.

    Most borrowers are sensible people.

    What this will do is cut out the stuff that goes on where a borrower fails servicing with us by 8000 a mth and magically gets the deal done with another broker, or at retail. Sometimes we have made a mistake :) but mostly its had 2 to 4 heads working on it by the time we say no.

    Thats a systemic risk, but I suspect a rare outlier

    ta
    rolf
     
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