LMI Capping on the table again or not?

Discussion in 'Property Market Economics' started by DueDiligence, 10th May, 2020.

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  1. DueDiligence

    DueDiligence Well-Known Member

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    Our broker only a few months ago said all banks were stipulating min entry was 5 % deposit exclusive of LMI. This mean all LMI had to be then saved again on top off the deposit and footed by me as the buyer.

    It wasn't that long ago LMI was being capped in to make loans 95-97 % LVR in this case. Has anyone see this going on again lately or did it never even stop and my broker is too lazy to do work on it?

    I've seen LMI discounts lately too. I'm not sure if Scomos LMI bribe is oversubscribed but Id be figuring with unemployment at 15 % there wouldn't be too many takers anyway.
     
  2. albanga

    albanga Well-Known Member

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    Yes this is still going on.
    Last I heard you can still cap to 99% with a couple of lenders.

    These would want to absolute rock solid deals and I would say in the current climate you would be very hard pressed to get one across the line.

    Most brokers would probably advise against this anyway. If you don’t have a guarantor and you can’t save more than 5% then you probably shouldn’t be getting a property.
     
  3. DueDiligence

    DueDiligence Well-Known Member

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    Interesting, we have 5 % and can service about 800 k a week mortgage and wanting to borrow just over half that. Debt free , not interested in saving LMI to simply pay rent, 200 k combined income. How do you reckon that would stack up?
     
  4. albanga

    albanga Well-Known Member

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    It just doesn’t make any sense to do this.
    Your going to be paying 15-20k in LMI in one of ,if not the most uncertain economic crisis of all time.
    Even if you could get the deal across the line, give it 12 months and your going to have a LVR or 120%.

    Keep keep keep saving.
     
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  5. DueDiligence

    DueDiligence Well-Known Member

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    I see your angle, but not with the property Im looking at which is at about a 10'% discount today already. The LVR goes from 98 to 93 % in one year even with the LMI capped because were not over-borrowing for our income. The net benefit on rent vs buy doesn't stack up, but in 3 years with the property at the same value (so still down 10% on list-which is dramatic), the net benefit is positive. People agree property is about to fall, but few agree that buying is still a good hedge in certain situations.

    Each dollar saved to avert LMI isn't a full dollar saved. Only distressed sellers take haircuts, only those that need to sell, actually sell. A city down 10 % on paper means nothing if properties are not being listed.
     
  6. Terry_w

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

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    This is not the case. Most lenders are lending a max of 90% - usually inclusive of LMI. Not many do 95%.
     
  7. DueDiligence

    DueDiligence Well-Known Member

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    I guess the country is not as subprime as I thought it was.
     
  8. albanga

    albanga Well-Known Member

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    what are you basing your 10% discount on?
     
  9. DueDiligence

    DueDiligence Well-Known Member

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    Comparable sales in 2015/16.

    Edit: To elaborate, I’m assuming 2 % CG average YoY compounding 2015-2020 . So If I buy a house today at the same price it sold for in 2015 , it’s 10 % down.

    In real terms, the actual CG is higher but I’m being conservative because it wasn’t real anyway.


    But if it goes 10 % down from today (again), it gets interesting....On a rent vs buy basis in 5 years , still ahead just slightly on net terms.
     
    Last edited: 11th May, 2020
  10. Illusivedreams

    Illusivedreams Well-Known Member

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    Would this not better be asked in Loans and Mortgages section?

    More broker to ask the questions to.
     
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  11. DueDiligence

    DueDiligence Well-Known Member

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    I probably should’ve put it in there , yes
     
  12. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    Playing the devils advocate here to answer the question...

    If you're on a good income with little debt, why haven't you been able to save a larger deposit? Perhaps your spending habits need some extra attention.

    It's not a problem as long as everything else stacks up, but it does raise a few flags.

    Australia has never had a subprime problem. That was a problem in the USA, not here. Some lenders got into trouble during the GFC because they were reliant on the USA for funding, not because they were dangerously exposed to domestic mortgages.

    Right now lenders are very keen for borrowers with strong financials (they always are), but they are more cautious right now than ever about who they lend to.
     
  13. DueDiligence

    DueDiligence Well-Known Member

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    No debt including HECS takes time, a career change also caused an income adjustment, Outgoings are fine. In hindsight, would’ve been better off not clearing debt and saving more. The irony of being responsible.
     
  14. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    As I said, usually not a problem, but lenders do ask questions.
     
  15. DueDiligence

    DueDiligence Well-Known Member

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    Is there a rule of thumb on 000 k debt impacting overall borrowing?

    If i were to do it again I wouldn’t have payed the debt off, I actually think it worked out worse off.
     
  16. Archaon

    Archaon Well-Known Member

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    I believe its more based around monthly repayments.

    What type of Debt? Credit card/car loan its a 1:4 ratio I believe.
     
  17. DueDiligence

    DueDiligence Well-Known Member

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    Fixed term, I’ve heard card are estimated at 2-3 % their max balance.
     
  18. JohnPropChat

    JohnPropChat Well-Known Member

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    Depends on the type of debt.
    Personal loans are based on actual repayments.
    HECS is based on actual repayments.
    Credit cards at 3.8% of limit
    OFI debt is at assessment rates

    For every 100 dollars in debt repayment each month translates to anywhere from $15k to $20k in borrowing, approximate of course.
     
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  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Post 95 % lends have been very restricted since GFC days

    ta
    rolf
     
  20. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    Servicing calculations can be fairly complex. I can give you a rule of thumb on borrowing if you don't have any additional debt, but when you start to add things like personal loans into it, the shortcuts don't work so well. Better to do it properly rather than guess.
     
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