Novated Lease - impact to borrowing capacity

Discussion in 'Loans & Mortgage Brokers' started by smator, 21st Jul, 2015.

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  1. smator

    smator Well-Known Member

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    Hi all

    Just wondering what the impact of a novated lease is to your borrowing capacity? Does it reduce what you can borrow by the amount that is financed? Or is that too simplistic a view?

    Thanks!
     
    smator, 21st Jul, 2015
    #1
  2. EN710

    EN710 Well-Known Member

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    EN710, 21st Jul, 2015
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    smator likes this.
  3. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    The effect of a novated lease (or a personal loan for that matter) is dependant on the monthly repayments, not the amount owed. As per those threads on Somersoft which @EN710 has quoted, the effect on your affordability can be quite substantial.

    If you're looking to be an active investor, I'd suggest avoiding a novated lease (or any consumer debt), just because of the nasty effect it has on your affordability.
     
    Peter_Tersteeg, 21st Jul, 2015
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  4. albanga

    albanga Well-Known Member

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    One of those posts were from me and whilst I have still not replaced my vehicle I have decided with novating again for 2 years.The biggest downfall is the effect on my serviceability which given my plans I can live with for now.
     
    albanga, 21st Jul, 2015
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  5. wombat777

    wombat777 Well-Known Member

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    Paying out my residual in 26 months is part of my plan. Should give a nice kick to my income for servicing more IPs.

    The vehicle is a keeper as it is a classic ( 31 year old chassis/body design with a 57 year old design heritage ). Production ceases this year due to design rules.
     
    wombat777, 21st Jul, 2015
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  6. smator

    smator Well-Known Member

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    Is there a way to calculate the impact on what you'd be able to borrow if it's an extra $3000 in annual expenses? Or too many variables?
     
    smator, 22nd Jul, 2015
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  7. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    The effect varies from one lender to another depending on how their calculators work, the current interest rates, and the assessment rates they use. There's no simple rule of thumb that's going to be accurate.
     
    Peter_Tersteeg, 22nd Jul, 2015
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  8. bunkai

    bunkai Well-Known Member

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    There are other factors to consider - particularly that if you take out a longer lease (say 5 years) - you are effectively locked in to that arrangement / financier for the entire term and can not exit without a fairly punitive payout. This can be a real issue if your "business case" depends on novation, you change employer and are unable to re-novate.

    Correction: Re-novate not renovate:)
     
    bunkai, 22nd Jul, 2015
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  9. smator

    smator Well-Known Member

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    Thanks!
     
    smator, 22nd Jul, 2015
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  10. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Novated leases can have a big hit to your borrowing capacity depending on the size of the ongoing repayments.

    I see it quite a bit with public service clients leasing flash new cars. Some of the repayments are ridiculous.

    Cheers

    Jamie
     
    Jamie Moore, 22nd Jul, 2015
    #10
  11. Kesse

    Kesse Well-Known Member

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    Also to add with the fully maintained novated leases is that you have all the running costs coming out of your lease but this is also taken into consideration with your monthly living expenses so essentially taking a double hit for it. It can be explained to the bank that x,y, & z are covered in your lease but they still have their minimum living expenses each month that they apply no matter what.
     
    Kesse, 22nd Jul, 2015
    #11