How many loans?

Discussion in 'Loans & Mortgage Brokers' started by 13161, 11th Dec, 2017.

Join Australia's most dynamic and respected property investment community
  1. 13161

    13161 Active Member

    Joined:
    10th Dec, 2017
    Posts:
    33
    Location:
    Melbourne
    How long is a piece of string?

    So, I know it's a bit of a silly question but I wanted to ask if there was any merit to it. I heard recently that it's particularly hard to get more than three loans for investment purposes. To me, this sounds a little bit wrong, surely if you've got 50% LVR and a $150,000 pa income and everything is positively geared you can get a fourth?

    Not being a mortgage expert I thought I'd ask the question. It just seems a bit silly to me, but that said there seems to be some quite significant restrictions on our lending at the moment.

    Thanks in advance.
     
    Perthguy likes this.
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,598
    Location:
    Gold Coast (Australia Wide)
    Subject to servicing and equity

    loans are "limitless"

    ta

    rolf
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,666
    Location:
    Australia wide
    Depending on the situations my clients seem to be tapping out at around the $2mil mark for a couple.

    Very generally
     
    13161 likes this.
  4. 13161

    13161 Active Member

    Joined:
    10th Dec, 2017
    Posts:
    33
    Location:
    Melbourne
    Thanks so much everyone, can't believe I let a little comment instill so much fear.
     
  5. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    3,977
    Location:
    Canberra, Brisbane and Sunshine Coast
    There's been massive changes to the methods banks use to calculate max borrowing.

    The vast majority of lenders have adopted a similar approach whereby they calculate new and existing debt the borrower holds at a rate of 7%+ and P&I repayments. This almost doubles the actual repayments if the client is on a sub 5% rate with IO repayments.

    There are some small differences between lenders - and there's still a couple of "generous" lenders when it comes to calculating max borrowing for investor clients.

    Having said all that - whether it's possible for someone on $150k and a portfolio LVR of 50% to purchase a fourth property....the answer is "maybe"

    Cheers

    Jamie
     
    13161 and Perthguy like this.
  6. DaveM

    DaveM Well-Known Member

    Joined:
    14th Jun, 2015
    Posts:
    3,761
    Location:
    Adelaide & Sydney
    3 loans with the wrong lender order/selection can kill number 4. Which is why you need to use a good broker (or understand lender policy very well if dealing direct).
     
    MJS1034 likes this.
  7. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,673
    Location:
    Perth WA + Buderim Qld
    No need for fear, but for many people it can be the truth. There are ways to extend your borrowing capacity though, through a few things -
    • Increasing income - PAYG/SE income is best.
    • Reducing non-deductible debt - via debt recycling, or just paying it off.
    • Once that's done, keeping debt levels reasonable via strategic sales and projects rather than buy and hold.
    • All the obvious stuff like getting rid of car loans, credit cards and so on.
    There's a lot of truth that borrowing is becoming much harder to come by, and it's going to get tougher yet so thinking about ways you can implement these things now will ensure you can keep borrowing into the future.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,666
    Location:
    Australia wide
    I was just talking to a client who has tapped out at a particular bank with just 2 loans, under a million combined. He will probably squeeze one more in with a different bank but that would be around $1.1mil in debt and he is stuck potentially - $130k in salary, main residence paid off.

    Next we start working with his spouse.

    Then we combine forces with both of them. They will probably get $2mil combined
     
    13161 likes this.
  9. Redom

    Redom Mortgage Broker Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    4,607
    Location:
    Sydney (Australia Wide)
    In general its harder/riskier for borrowers to build massive portfolios with 10+ properties/loans on standard incomes now.

    In general, the more your income & surplus income, the more you'll be able to borrow. The number of loans is also less relevant compared to the value of the debt. Lenders don't really punish you for having 10 x 100k loans vs 1 x 1mill loan (assuming all with the same lender, etc). They'll factor in $1mill of debt regardless & use their assessed expense rate on this 1mill worth of debt into your serviceability.
     
    13161 likes this.
  10. Tom Simpson

    Tom Simpson Well-Known Member

    Joined:
    13th Dec, 2016
    Posts:
    186
    Location:
    Subiaco
    You're right though, if you have good income and equity to boot there's no reason a bank would limit your borrowing.

    They would generally limit borrowing:
    a) because you've maxed out their servicing (ensure you've paid off all non-deductible and non-necessary debts then move on to another bank)
    b) because you have no equity (get a broker to run some vals for you) or
    c) because you've reached your credit limit with the bank based upon their risk concentration appetite
     
    13161 likes this.
  11. 13161

    13161 Active Member

    Joined:
    10th Dec, 2017
    Posts:
    33
    Location:
    Melbourne
    Thanks Jess,

    this is all good advice, which is why I'm doing it, I'm coming up to house number three now. The interesting point to me is that you're talking about other options than buy and hold, of which I wanted to do, but not so soon. I'll huff and I'll puff and when I can't go any further I'll have to calculate the options.

    One example is that we don't even use a credit card and offset combination because of the impact it will have on our lending, which although touted as the magic spell to cast on those unprincipled interests, I'm sure we'd lose more by not gaining another property.

    thank you for your response.
     
  12. 13161

    13161 Active Member

    Joined:
    10th Dec, 2017
    Posts:
    33
    Location:
    Melbourne
    Thanks Terry,

    to me this is a little bit sick. Not saying that's not right, it is correct, doesn't seem just. With those specs I'd think he's in a great position to buy. Then again, I don't know his outgoings.
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,673
    Location:
    Perth WA + Buderim Qld
    It’s just reality now. You can find yourself with a good income, and surprisingly low borrowing capacity.
    If you’re going to max yourself out you won’t have the borrowing capacity to do any projects. I suggest you get alongside a good broker and do some planning. You need to plan this stuff well in advance to have a chance of doing better than simply buying and holding.
     
    92dyl likes this.
  14. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,130
    Location:
    03 9877 3000
    A few years ago if the client had done their budget even partway honestly and decided they could afford to borrow the money, there was probably a way to get them the money at reasonable rates with a mainstream lender.

    Today it's very much the opposite. A person wanting to own only their own home has seen their borrowing power reduced by about 30%. For an investor trying to build a portfolio, borrowing power is less than half what it used to be.

    Unfortunately borrowing capacity limitations are a conversation I have every day. The good news is that there are still a few lenders that are still reasonably generous towards investors (their limits have only reduced by about 20%). The bad news is they know they don't have much competition they'll make you pay for it.
     
    Brady likes this.
  15. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

    Joined:
    18th Jun, 2015
    Posts:
    6,673
    Location:
    Perth WA + Buderim Qld
    To add to what Peter said, there are a couple of generous lenders but there are now inherent risks in using them that never used to be the case, simply due to the lack of options available to you once you have that level of borrowing.

    If using Pepper or Liberty I suggest having a clear exit strategy before you jump in.
     
    Brady likes this.
  16. Medine

    Medine Well-Known Member

    Joined:
    20th Jul, 2015
    Posts:
    77
    Location:
    Melbourne
    Hi Triplestorey,
    It's a bit of a random number of loans but maybe is linked to the Liberty 'professional investor' loading? The folks over at Liberty are quite generous with lending for investors until you have three properties - then they load your interest rate with an extra 0.75%. Ouch. Maybe that's where the speculation came from?
     
    13161 likes this.
  17. Phantom

    Phantom Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    2,054
    Location:
    Sydney
    Just another myth in property finance. There is no maximum number of loans that you can have. There is income, expenses, assets & liabilities and a host of other variables that will determine how much you can borrow. This amount is constantly changing, so what may be possible today might not be tomorrow and vice versa.
     
  18. 13161

    13161 Active Member

    Joined:
    10th Dec, 2017
    Posts:
    33
    Location:
    Melbourne
    Thanks. So long as there's more juice to be squeezed, I'm fine with it. It's when they want the orange as well that there's a problem. Gotta be willing to take a few hits.
     
  19. 13161

    13161 Active Member

    Joined:
    10th Dec, 2017
    Posts:
    33
    Location:
    Melbourne
    Thanks Terry,

    It's alarmingly close to my situation (although I've not paid off my house).Can I ask what the partner's income is? Ours is $130 + $75. I have very low outgoings, so low the bank won't accept them.
     
  20. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,598
    Location:
    Gold Coast (Australia Wide)
    Thats because this is called unsuitable lending, where ASIC will sue the lender for not using a minimum amount around 3 to 4 for many families your size

    Its got so stoopid with some lender calcs, with some clients if you ADD 5k gross income, they get bumped into the next "expenses" bracket and are deemed to spend 6000 after tax more a year. Spend more than you earn :)

    ta
    rolf
     

Build Passive Income WITHOUT Dropping $15K On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia