How lenders calculate your borrowing capacity in 2017

Great insights, thank you

 

Interesting - i agree with the thinking, there's already a load of conservative buffers inputted into calculators. From a regulator standpoint, i think they look at it more from a prism of whats conservative. Borrowers can't claim 7% in tax returns, so it should be the actual rate. The assessment rate is there for a reason & shouldnt be 'clawed back' by backend adjustments to calculators (like negative gearing addbacks at assessment rates).

St G were actually near top of the pile for an investor with no existing debt, albeit marginally, so this will bring those borrowers that fit this profile down a bit (e.g. young aussies looking to buy an investment first, rentvestors, etc).

 

In reality the first time investors are rarely the ones struggling with servicing capacity so it's not going to make a huge difference to that group.

 

We see it a fair bit here in Sydney - hence its a little 'blow' for those looking to stretch themselves a bit early with marginally higher purchase prices. Usual profile is young borrowers looking to rentvest locally with likely income rises in future. Although it does make sense in Sydney relative to other cities with prices at higher levels and debt levels representing higher portion of incomes.

 

Firstmac still does this. 7% on both sides of the coin. They are also quite good with non core income sources- bonus, overtime, commissions etc...

 

well, it is interesting to read all the above comments and advice, actually for investors with large portfolio ( $4-6 mil and above) with reasonable PAYG incomes, it is increasingly become impossible to grow or expend their portfolio.

on the other hand, this is a good time for first time or second timer young or older investors to purchase ( because of less competition). it is a good time to get in the market. for these starting up, there are still lots of choices available to them.

 

And then they will hit the servicing ceiling as well - and early on. The difference between pre APRA and post APRA is that existing investors are seeing their momentum slowed and then stalled, and new investors are reaching servicing ceilings far earlier than existing investors did... and the momentum for either category of investor cant be restarted without improving borrowing capacity. That can only occur through large pay rises or debt reduction, or by selling and replacing those sold properties with less expensive ones.

Given the most recent data on wage inflation tracks it at 1.9%, I think wage growth is not on the horizion for most...leaving the best choice as debt reduction... and for that, nothing beats a cash cow.

 

While on the topic of borrowing capacity, how do margin loans factor in post APRA? They used to be viewed as debt, even though to have a margin loan collateral must be used. So a person with shares and the equivalent margin loan could borrow less than a person with no assets. Never did make much sense.

 

Another (perhaps tricky) question - foreign income and non resident for tax purposes

- do they still just take 80% of foreign income to be conservative on exchange rates?

- how do they view taxation of overseas income (if a non resident for tax purposes in australia), will they accept the net income after tax in that country?

 

This depends on the lender, currency paid, location etc. But the general circa 80% shading of income is around the same. Some lenders will accept the net income based on the local tax environment if the client is a non-resident for tax purposes, whilst some will still apply the net amount based on Australian taxes even though it doesn't quite make sense.

 

For those that are interested, part two of this post here:
Investor Finance: How to Maximize Your Borrowing Power