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Use of Bonus for Borrowing Capacity calc

Discussion in 'Property Finance' started by Undervalued, 22nd Dec, 2015.

  1. Undervalued

    Undervalued Member

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    Just wondering whether anyone here has knowledge on what constitutes sufficient evdence of bonus payment for inclusion in borrowing capacity.

    Having a tough time in convincing a lender that the line on the payslip which says 'bonus' is sufficient across two years. That makes no sense to me at all, but perhaps I am missing something....or just dealing with a less experienced banker.
     
  2. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    1) Which lender?
    2) Are you dealing with them direct or via a broker?
     
  3. Hodor

    Hodor Well-Known Member

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    Get a broker. Dealing with banks is not the way to go, causes headaches and wastes time IMO.

    Many banks will accept bonuses with a 2 year history, a broker will help you here
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Lenders look for consistancy of income. You payslip showing a bonus doesn't necessarily mean you'll get another one so lenders are reluctant to rely on this to prove you can afford the loan in the future.

    Most lenders will want evidence that you've been paid a similar amount for at least the last 12 months, often longer. Furthermore, many lenders are starting to only use only a percentage of the bonus, not the whole lot. After all, it's at your employers discression how much you'll get next year.

    There are a few lenders which will take it at face value, but these lenders (thinking ANZ and AMP specifically) tend to be very conservative in many other aspects of their lending.
     
  5. Undervalued

    Undervalued Member

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    I need it to be HSBC so I went direct to a banker there. Would a broker be a better option even in this scenario?
     
  6. Omnidragon

    Omnidragon Well-Known Member

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    I've been paid bonuses for my entire career. I find bank tend to use my lowest bonus in the last 2 or 3 years.
     
  7. Redom

    Redom Mortgage Broker Business Member

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    Most have reasonably conservative policies on this - require 2 years history of bonus income, use 80% of it, use the lower amount, etc. If you change jobs, some require it to be from the same employer (not a different one).

    Can be quite frustrating for overseas income earners - often i find they have a significant chunk of remuneration paid in bonuses that dwarfs their base salary (at least in finance).

    If it makes up a significant chunk of income, there are some better than others that may lead to better servicing outcomes for yourself.

    It may be a hard slog trying to convince the bank to make an exception on their policy, going to a place where no exception is required may be the best bet.

    Cheers,
    Redom
     
  8. Undervalued

    Undervalued Member

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    A few years back, on ~25% less income I had ~25% more borrowing capacity from CBA than what HSBC is offering now.

    Is this specific to the lender (HSBC) or more an industry wide lending pullback?
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Industry wide within the last 6 months.
     
  10. Redom

    Redom Mortgage Broker Business Member

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    One of APRA's comments in their speech a while back was to start applying discounts to uncertain forms of income (overtime, bonus's, etc). Its been a number of banks making changes to this type of income - NAB have just come to the party here a couple weeks back.
     
  11. euro73

    euro73 Well-Known Member Business Member

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    Peter is dead right. The only real exceptions are Liberty, Pepper and NAB ( under the right circumstances) - otherwise, pretty much everywhere you look, you have lost $35-45K of income for servicing, per $1Million of debt. This is a result of two things mainly;

    1. Significant increases to sensitivity buffers that have been applied to all existing debt. Typically equal to 2.5% - 3% more than the "actual" rate you are paying. This takes away 25-30K of net disposable income per $1 Million of existing borrowings, compared to how the banks treated that debt just 6 months ago. For 500K of debt, it's half that amount - which is still a big pay cut.
    2. Significant increases to Household Expenditure Measures - the impact of this change can be as little as zero for some , or as much as $1000-1200 per month if you earn a combined household income a little over 6 figures. For most investors with a 2-3 property portfolio or more ( meaning many people on here) this probably means you. That takes away another 12-14K of disposable income that wasnt being taken away from you by the banks calculators 6 months ago.

    Add those two figures together and that should help you understand why you cant borrow anywhere near as much as you were expecting you might be able to, especially if you havent tried to borrow for at least 6 months, and this is the first time you are colliding with the post APRA servicing calculators.

    There are a few other things the banks have done to de-tune your capacity , but these two are where the real pain comes from. The other changes pile on a little more pain, but arent as significant as these two policy changes. And neither of these policy changes appear to be going anywhere for quite some time - APRA and ASIC are not making any noises at all about letting Australian lenders get off the leash again, any time soon... so aside from the 3 lenders mentioned above this is the way of the world now, as far as Australian investment mortgage lending goes.

    You will need to increase your income quite a bit or reduce your debt quite a bit in order to recover some of the capacity the policy changes have taken from you - or better yet ... do both. :)
     
  12. bob shovel

    bob shovel Well-Known Member

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    Side topic if I may.

    What's going on if an employee gives a cash bonus? Is that done these days??
    Reason, Wife's friend husband just got a 10k cash bonus, as in an envelope full of $20 notes. Is there likely something suss going on? Husband got something dodgy going on the side??... Always the sceptic ;)
     
  13. willair

    willair Well-Known Member Premium Member

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    Depends on what employment they are in i guess,and how far they have climbed up the ladder..
    Pages - Hearings
     
  14. tobe

    tobe Well-Known Member

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    Cash payments are fine. Lots of people still get cash in a little packet on a Thursday arvo. If the envelope income isn't on the group certificate then that's another story.
     
  15. bob shovel

    bob shovel Well-Known Member

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    IT private company, fairly small. Been there 6 months, no more than 12 mths
    Can't tie his shoe laces but seems to know computer stuff. At a guess 100-130k salary
     
  16. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Why does it have to be HSBC op?

    Cheers

    Jamie
     
  17. jpcashflow

    jpcashflow Well-Known Member Business Member

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    In a nutshell most lenders / banks will calculate 80% of the commission / bonus.
    As Jamie mentioned above any reason why it has to be HSBC.
     
  18. Undervalued

    Undervalued Member

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    Peter - Thanks for the insight. Really appreciate it. I guess this goes a long way to explaining the dropping auction clearance rates...

    Jamie / Johann - Reason why it has to be HSBC is that I am looking to refi a property in the UK and buy another property over there. From my extensive investigations the only bank that can offer me finance given I am not resident there is HSBC UK and that only if I am an HSBC Premier customer. The least capital intensive option to 'achieve' this status is to become a Premier customer in Australia by giving them my mortgage.

    Always open to alternatives though...
     
  19. Scott No Mates

    Scott No Mates Well-Known Member

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    Crumpled brown paper bags are better than envelopes.
    • More discreet
    • Can hold more cash
    • Easily passed between parties
     
    bob shovel likes this.
  20. tobe

    tobe Well-Known Member

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    So hsbc will only refi your UK place if they also refi your Aus place? And then they want you to use them for the next purchase too? Smells odd.