How to calculate serviceability ?

Just wondering if the below is correct for normal PAYG income & 80% LVR for a residential investment property purchase?

Liberty - servicing calculation (most generous)

• Existing loans = actual current repayments being made
  
  
• Proposed new loan = assessed at 7.5% interest rate of new loan amount + principal repayments over life of loan?

• rental income (new & existing properties) = 80% of rent
  
  
• Credit cards = assessed at 3% limit?
  
  
• HECS-HELP = assessed at 7% amount?
  
  
• Negative gearing = included in calc?
  
  
• Living expenses = Household Expenditure Method (HEM) amount?

Pepper - servicing calc
Similar to above, except existing loan repayments are assessed at (actual +28%)

Other lenders - servicing calc
Similar to above, except existing loan repayments are assessed at 7.25% - 7.5% interest rates. Negative gearing benefits may or may not be included.


Questions:
a. Is this all correct or missing anything important?

b. Any more generous lenders like liberty and pepper - with comparable interest rates?

c. When applying for a new home loan, you usually need to disclose your existing property-related expenses & also personal expenses.

Do banks use these actual amounts in their serviceability calculations, or just use 80% rental income (as proxy for property-related expenses) & HEM amount (as proxy of personal expenses)? or just choose the higher one?

cheers!

 

Ask a broker

 

As above.

There are loads of niches with each lender. A brokers job is to know which niche suits you best. Generalities are helpful for new brokers learning the trade, but then only to see how lender niches 'fit' different customers.

 

Good to know to roughly before you get to the broker though. Gives you a rough idea of where your at, keeping in mind it can be shot to pieces by the slightest thing

 

Roughly your pretty close to the mark with the generalities commented above.

There are generally three tiers of serviceability for treating existing debts now:

• Lenders that take actuals or close to (Liberty)
• Lenders that have a loading on existing debt (Pepper, CBA, Westpac)
• Lenders that treat all debt equally (Most).

Re serviceability, Liberty have the best calculators for investors, Pepper are decent too, Firstmac/St G are ok for lenders that treat debt equally. CBA aren't the worst (but that may change soon). This does change quite frequently though.

Re Liberty specifically - they apply a 2% buffer on new debt & use a lower living expense benchmark than HEM. This makes them unique, but it is very much a case of buyer beware given this niche.

HECS/HELP repayments do make a difference depending on the lender actually - some work of salaried income, others work of salary + rent (@ ATO tax rate). That can make a pretty big difference for investors with large rent incomes.

 

At 80% LVR or below, Firstmac assesses debt at 7%, but they also calculate/credit you with 7% interest expenses when determining neg gearing . Just about everyone else works out your servicing using a sensitised rate, but applies neg gearing addbacks using actuals. This makes Firstmac quite useful, especially if you have a decent bit of INV debt. Aside from Pepper and Liberty, they are next best in most instances... and if you are willing to give them your PPOR as well, they are offering quite really good rates for investors.