Self managed IPs reduce borrowing power?

Discussion in 'Loans & Mortgage Brokers' started by R.C., 5th Jun, 2018.

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  1. R.C.

    R.C. Well-Known Member

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    My broker tells me that borrowing power is considerably reduced, with ANZ at least, because of a couple of local IPs that I manage personally. He suggests that I could borrow more if I were to allow a PM to manage them, even if only for a short term during the application process until after settlement.

    Has anyone else encountered this?
    Can any brokers here fill us in on the assessment criteria?

    Thanks
     
  2. wylie

    wylie Moderator Staff Member

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    I've never encountered this. Sounds odd to me. I'm keen to hear from the brokers if this has ever come up for loan applications.

    In the past, I've had to choose insurance carefully as a self-manager, but these days there are more companies that accept self-managed properties.
     
  3. Terry_w

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

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    I haven't used ANZ for a few years now, but most lenders will accept self managed properties with a written lease and proof of rents in bank accounts
     
  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    No lender I've ever encountered has any sort of differentiation between professionally and self managed in their serviceability calculations.

    Either you've misinterpreted what your broker said, or they're just plain wrong.
     
  5. Terry_w

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

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    Or there may be no lease in writing and no rents received?
     
  6. Christina46

    Christina46 Well-Known Member

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    I've been told the same thing by a Mortgage Choice Broker before we move to a more investment focused broker, so you are not alone @R.C. - I was told that a smaller percentage of rental income would be used, thereby reducing serviceability. To be honest, it's not something that I've ever questioned again.
     
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  7. Corey Batt

    Corey Batt Well-Known Member

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    The main issue with self managed properties comes down to verification of rents, than the actual rental amount received being reduced. Where this could be mixed information may be if you're renting a property out per room - the acceptance and verification of this varies.

    Placement of loans with a portfolio including self managed properties can be a little more limiting if the right documentation cannot be provided - ie if rental credits are not timely, received as cash and not deposited, tax returns not up to date etc. If you keep all your documentation up to scratch it'll be less of a problem.
     
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  8. D.T.

    D.T. Specialist Property Manager Business Member

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    I don't think its the self managing that is the issue per se.

    If you had proper statements to pass on to your bank / broker all would probably be fine. But one of the main issues with not having a property manager is not having legitimate record keeping.

    I'm not a broker, but I bet if you showed dribs and drabs of rent here and there or didn't have proper proof, they might assess it at a lower rate. Check with your bank / broker for details.
     
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  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Self managed with a lease should pose no issue.
    Shortstay is always subjective and akin to casual work
     
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  10. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Corey and DT are probably onto something. The broker simply might not be using the rent at all because it's too hard to verify the income. There are several ways to verify rental income in self managed property, two of the following are generally fine:

    * Lease agreement, ideally one that hasn't expired.
    * Bank statements showing regular rental credits (just be careful about what else this might show).
    * Bond receipt.
    * Tax return showing the rental income (best avoided, this sometimes comes with it's own can of worms).

    If you can't come up with these documents, then I'd suggest that you've got some other risks to address before you even think about financing the next property.
     
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  11. wylie

    wylie Moderator Staff Member

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    I'd have to agree with this. We've always just had to provide a current lease and proof of rent coming in. If you don't have that to hand, then there could be trouble ahead if anything goes wrong and someone (tenant, bank, ATO) asks for a copy of the rental ledger.
     
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  12. R.C.

    R.C. Well-Known Member

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    Appreciate all the replies.

    AFAIK it is not a problem with documentation, I can, and have previously, provided everything the broker & bank required. Current fixed term RTAs with reliable & longish term tenants >2 & 3yrs, paying ~10% above market rent into account at same bank, proof of insurance, etc...
    Logically but incorrectly, I assumed that the bank would actually favour the additional 5-10% income from NOT paying PM fees.

    I think @Christina46 hit the nail on the head.
    Can accept it is not a common or recent APRA restriction. Maybe it is just ANZ that assesses a smaller percentage of rental income for self managed IPs, but recall being told it does reduce serviceability somewhat. Initial conversation with broker was a year ago, IIRC it equated to something like 20 - 30K less. It did not become an issue last year, however it looks like restricting me this time and he therefore advised temporarily using a PM if I need more.

    Have emailed broker and am waiting for a reply about the current criteria for serviceability between self-managed and professionally managed properties.


     
    Last edited: 5th Jun, 2018
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  13. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    u are right

    its not

    APRA dont go to that level of detail

    they want an end outcome and leave the lenders to mop up the mess as they see fit

    ta

    rolf
     
  14. R.C.

    R.C. Well-Known Member

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    Received reply from broker:

    "It is impossible to actually tell you a difference in capacity, because the banks’ policy is that privately managed rental income is an exception to policy, meaning they do not have to accept any of it, or can use the suggested rental amount on the valuation, it comes down to the banks decision on the overall application. However, if it is managed by a Real Estate agency then they will use 75% of the income."

    Am I correct in assuming that is ANZ`s specific policy, other lenders may differ?

    Although I have been happy with the service from this particular broker and also ANZ who hold mortgages on 2 IPs as well as other accounts & CC, is it time to be looking for a more investment oriented broker and alternative lenders / refinancing?
     
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  15. Terry_w

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

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    I don't know the ANZ policy off the top of my head, but have a client with a self managed property with a loan from ANZ for that property. The valuation was used for rent.

    What is the rental estimate on the valuation? That may work out enough.
     
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  16. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    ANZ will use 75% of the rental income towards servicing, whereas most lenders use 80%. Alongside other policies, they tend to be quite conservative towards investors. Realistically though, that 5% difference is negligible and rarely affects the outcome.

    They don't discriminate between self and professionally managed. No lender does in my experience. I have written loans with them where the clients self managed property.

    I've attached the current ANZ document check list. Rental evidence income is halfway down the left column, items 1, 2 & 5 can easily be used for people self managing.
     

    Attached Files:

    Last edited: 6th Jun, 2018
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  17. R.C.

    R.C. Well-Known Member

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    Thanks Terry & Peter.

    I have 2 existing loans for IPs with ANZ and am looking at buying another. I think they used 80% of rental income on a previous application. There is no valuation or rental appraisal yet as I don`t have a particular property in mind. Have just been enquiring about maximum borrowing capacity and intend applying for pre approval so I know my budget before going shopping.

    If need be, I have a friend who is a REA, she has previously provided me with a generous rental appraisal for another purchase and ironically I managed to exceed it. Realistically I could ask her to manage the self managed properties to satisfy the bank but would prefer to avoid the hassle & inconvenience all round.

    I have found that this issue along with the HEMS provisions are restricting my borrowing capacity. Guess I could always wait another year or 2 till after the RC, when banks discover they have cut their own throats with unrealistic requirements.
     
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  18. Terry_w

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

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    If you are talking future property, that is easy. Just assume 4% yield for now and they will go off the valuation.

    I thought we were talking existing self managed properties
     
  19. R.C.

    R.C. Well-Known Member

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    Thanks for the PDF Peter. :)

    I`m sure the broker is referring to income from ALL self managed properties, existing AND future. Going by his reply, the bank accepts 75% of rental income via a PM, and may or may not allow for anything from self managed properties, but also up to a maximum of 75%, at their discretion. Agree that 5% difference between 75 or 80% isn`t much, however there is a large difference between 75% and SFA!
     
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  20. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Fair point. The bank can do whatever they please and it's not uncommon to see assessors making some ridiculous decisions. My first call would be to some people I know to get that decision overturned and if they still wouldn't be reasonable, then they loose the business.
     
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