Serviceability buffer & floor rate.

Discussion in 'Loans & Mortgage Brokers' started by jembuss, 9th Jan, 2020.

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  1. jembuss

    jembuss Active Member

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    Hey guys

    So i have been using in-house lenders at CBA & NAB to try and secure a loan for a PPOR

    I was pre approved from them both.
    my concern is iv been looking into the serviceability buffer rate & floor rate that CBA currently have set and from what i have researched and found it looks like the credit approval team at CBA have a 2.5% buffer rate and a floor rate of 5.4% which ever one is higher.

    so if i go ahead at the negotiated rate of 3.1% i suspect the credit team will check my serviceability based on 3.1% + 2.5% = 5.6% which would change my borrowing capacity, this is my concern.

    Iv heard a few horror stories about people putting down deposits with pre approval and not getting the final approval then losing there deposit and affecting there credit score.

    I've been advised by the in house lender to secure the property. i have brought this up with the lender from NAB and he seems to think this is not a problem. Is he misleading me and setting me up for disaster?
    could anyone shed some light on this should i be worried?

    my situation :
    Required loan amount - 625k
    Base salary - 115k
    credit card - 5k limit
    no other personal loans or debt

    looking foward to hearing your thoughts

    Regards
     
    Last edited: 9th Jan, 2020
  2. David R Sutantyo

    David R Sutantyo Well-Known Member

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    Is this a new purchase? I always tell my customers to never max out their borrowing capacity unless circumstances dictate it. In saying that, if you're applying through a branch of one of the big 4, these guys are well known to turn a blind eye on a lot of things just to get your business (hence why they get in trouble), so you'll have a bigger chance to get it through to settlement eventhough things are looking a bit tight.

    I know your credit card limit is only $5k and it won't make a huge difference, but try and see if cancelling the card will make a difference. Good luck!
     
  3. jembuss

    jembuss Active Member

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    Thanks for your reply @David R Sutantyo, yes this is a new purchase of land & construction.

    I have being weighting up my options should borrowing capacity become a issue and yes closing my credit card would help slightly.
     
    Last edited: 9th Jan, 2020
  4. Morgs

    Morgs Well-Known Member Business Member

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    Hard to say without knowing the exact details around what the bankers are using for the pre-approvals. They may not even be fully credit assessed.

    Do you have any contingencies if an issue does come up? I.e. potentially you can close the CC if a buffer is required.

    Buying/exchanging with the usual finance clause is another way to protect yourself, so you can progress the unconditional approval before being fully committed to the purchase.

    PS: Securing multiple pre-approvals can also be detrimental to your credit score :)
     
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  5. jembuss

    jembuss Active Member

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    Cheers @Morgs

    yeh looks like my two contingencie plans would be to 1. close credit card or 2. I have recently requested a pay raise from work which looks like could be approved shortly.

    so should i be sending the bank my land and build contracts and seeking unconditional approval hoping for the best or making a few moves with credit card and salary first.

    cheers mate
     
  6. Jess Peletier

    Jess Peletier Mortgages, Finance & Property Strategy Aust Wide Business Member

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    Hey there, before you sign a contract make sure your or approval has been fully assessed. Most lenders don't even have an assessor look at pre approvals, so I'd never rely on them.

    If you're not sure if it's been assessed, a good tell is if the bank had asked you a million questions about everything.

    If it's been very quiet, or extremely easy, you're pre approval is pretty much worthless and you should definitely not sign an unconditional contact based on it!

    Speak to a good broker for proper advice - there's heaps of great ones to choose from here.
     
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  7. Trainee

    Trainee Well-Known Member

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    Wonder if your credit record shows queries from both banks?

    as an aside, i rely on my mortgage broker for confidence in how much i can borrow.
     
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  8. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Do you actually know if the 0.2% will make a difference? I imagine if $625k is your absolute limit (and not a dollar more) that the people you're dealing with would inform you of this. In my experience people frequently go a little over their limit, so when that limit is absolute, I make sure they know that they're in for a world of pain if they go over it.

    Essentially I build a bit of fat into my comments to avoid problems later.

    Also many pre-approvals are assessed on the standard rates, not the negotiated rates. Since the changes in mid 2019, I have yet to assess an application using the floor rate of any lender.

    As long as the pre-approval is genuine (assessed by credit, not just the banker's opinion) you're probably over thinking this.
     
    Last edited: 9th Jan, 2020
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  9. jembuss

    jembuss Active Member

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    Thanks for your help guys, appreciate it, perhaps you are correct @Peter_Tersteeg maybe i was over thinking it.

    which ever the case i just secured a pay raise effective immediately, so this shouldnt be a issue now regardless.

    Cheers guys have a great day!
     
  10. sash

    sash Well-Known Member

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    Avoid CBA at all costs....they have a reputation to not approving loans at the last moment. Sure they might be easy for your broker to get the loan...but you will pay for it down the line.

    I have friend who has a PPOR and CBA will not move the rate from 3.78% P&I.

    Don't not let any broker tell you otherwise. They will have their knickers in a knot after this post! :D:p

     
  11. jembuss

    jembuss Active Member

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    Ahh shiiit... well there's a spanner in the works thanks @sash haha

    Soo i guess NAB it is then?.. NAB are offering me 3.17% variable, choice package with $2k cash back.
     
  12. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I can confirm that the NAB are a lot easier to renegotiate rates down the track than the CBA. The CBA may look slightly cheaper on the surface, but unless they change the last decade of pricing habits, they'll be more expensive within 12 months and remain that way.

    The NAB (and just about every other lender) will creap your rates up over time, but the NAB are generally fairly good about repricing existing customers to their current offer. The main catch is you need to know what to ask for and how to present it. I regularly get better results by about 0.2% than what people usually achieve by calling the bank directly.

    The third option is a second tier lender. There are a number of lenders that have cheaper rates and friendlier and clearer pricing policies with a better track record of rate adjustment. They're not offering cashback, but overall are more likely to be cost effective in the long run.
     
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  13. jembuss

    jembuss Active Member

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    Cheers mate, appreciate your wisdom & experience,

    Looks like ill be going with NAB, if you take into account the 2k cash back and look at it from a 2 year prospective it averages out at about 2.93%

    unfortunately for this purchase i am dealing with the banks directly to take advantage of the FHLDS.

    Regards
     
  14. Lindsay_W

    Lindsay_W Well-Known Member

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    Just so you know, you don't have to deal with banks directly to get the FHLDS ;)
     
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  15. Morgs

    Morgs Well-Known Member Business Member

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    Have they allocated a spot to you at this point? If not you may want to double check there are still any available. I had word they January CBA/NAB allocation has been exhausted!
     
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  16. Lindsay_W

    Lindsay_W Well-Known Member

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    I believe that's correct, although NAB have now announced a 33% LMI reduction for all first home buyers
     
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  17. sash

    sash Well-Known Member

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    No worries....St George and SunCorp is offering under 3% and some offer cash to refinance.

    They are a bit harder to get approval but would be well worth it!
     
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  18. jembuss

    jembuss Active Member

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    Yes i already have a spot & reservation ID

    Cheers
     
    Morgs likes this.

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