Rent Reliance, Cash and Shares

Hello,

A couple of general questions, i know every bank is different just trying to get idea how banks are treating these things at the moment.

Rent Reliance
Do many banks these days restrict lending based to rent reliance? Say your rent is 2x, 3x or even 5x PAYG income?
Does having lots of rent increase your living expenses, say 100k PAYG 400k Gross Rent do they treat your living expenses like someone with 500k PAYG?

How do banks treat cash in an offset account?
Anyone reduce existing other loans by the offset amount when doing the calculation or perhaps calculate income on the cash @ the 5%+ loaded up interest rate they apply to your other borrowings? (If they are going to assume you need to be able to pay 5%+ the cash will be offsettings @ that same rate if that ever happens).

How do banks treat shares?
I assume they count regular dividend income? But do they count anything else like trading profits?
Do they treat blue chips and smaller stocks differently?

Say someone has $2m in loans @ 2.5% , 500k Shares, $500k cash is this likely to be treated by the banks you have $2m @ 5% P&I with virtually nothing gained from the shares/cash?

Cheers

 

Honestly, just engage a good broker already

 

It's been a long time since I came up against the 'rent reliance' argument. Rental income doesn't have a huge effect on borrowing power these days, so by the time rental income is exceeding personal income, people have already exceeded other borrowing capacity metrics. Rent is definitely not treated the same as PAYG income.

Cash in offset accounts is treated the same way as cash in any other savings account. It can be used as a deposit, but it has not bearing on borrowing power. They will use the loan limit regardless of how the offset account looks.

Lenders want to review tax returns (usually over 2 years) to verify dividends. During the pandemic some lenders have decided not to recognise dividends at all. Capital gain are ignored because it's not considered an ongoing income.

 

Thanks for your reply Peter

Regarding rent reliance rents are seeing some pretty impressive increases now. People who maxed themselves out pre APRA crap could now be nosing back into being able to borrow or refinance thanks to rental growth. Curious to see what the lenders do. Hope no nonsense like rent cant exceed 5% of property vals or only taking 60% of rent etc

Re cash its amazing they give you nothing for cash, responsible lending = lend the same to someone who has saved up $250k in cash vs someone who lives pay to pay (talking about a refinance here). How can anyone describe that as responsible!

 

The rental cap is usually 6% of the current property value. Note the word, 'current', it's not based on your original purchase price, but todays value. Rents do go up over time but usualy the capital growth far exceeds the rental growth. It's rare that the 6% yeild cap is an issue.

Responsible lending is designed to protect the least responsible people. It's not designed for people who are able to save $250k. There are people out there who might get a $250k inheritance, go on a drug fueled bener, then 12 months later be broke. I don't disagree with the point you're making, but responsible lending isn't there to help you and it's become the holy bible for the regulators.

If they do abolish responsible lending, I will be going on a bender myself to celebrate, but I don't expect there to be any real change very quickly.

 

Sigh. It's all too true.

 

Responsible lending, designed to help the irresponsible (sometimes) at the expense of the responsible. Need to be able to get a responsible person certificate, pass this test and we know you know what you are doing and are exempt from this crap.

 

Rent reliance - haven’t seen too much of this recently given borrowing powers rarely work for those rent reliant. Many don’t have issues though in theory.

Cash / doesn’t help.

shares - a few do deeming rates. Macq can take 3% of balance. We just funded a client with a big share windfall and borrowing power was up 30% as a result (shares made up most of their net wealth given windfall)

 

That's handy to know, im just waiting for this little stock ive got to become a 10 bagger

So one could increase capacity with some banks (Macquarie etc) by chucking all your cash into the market before going for a loan. Good to know but absurd

 

Been on the Autobahns in Germany (u know in those days we could travel), everyone doing 180+ less accidents than here. I hear Germans are also pretty reliable at paying back loans as well

 

Yes but how many Germans are there that aren't reliable. If only their pact with the Japanese could have been for something a little more fruitful.

 

their credit is pretty switched on, don’t think it’ll work for anyone (other metrics, would need to be in strong position)

 

Germany has some regulated limits to borrowing too. Like our old bank rules which looked at allowing X% of income to service a loan. A broker will address variance in what lenders consider.

Many ignore offsets. And discount rent and extra income. Its does vary

 

That's not a bad idea...

Even if your stocks were to drop, your boost in liquidity may still be beneficial in some cases (as long as you didn't loose too much).

 

I'm assuming there are still no doc loans out there from what I can see if you have 30-40% deposit.

 

Not for nccp regulated loans. Yes for commercial and other non regulated scenarios.