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What Features Are Most Important in a Mortgage?

Discussion in 'Property Finance' started by Kirsti327, 13th Aug, 2015.

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Which mortgage features do you prioritise?

  1. 100% Offset Account

    29 vote(s)
    76.3%
  2. Interest Only Repayments (if they are at a higher rate than P&I)

    29 vote(s)
    76.3%
  3. Competitive Interest Rate

    15 vote(s)
    39.5%
  4. LVR up to 90% (with LMI)

    7 vote(s)
    18.4%
  5. LVR up to 95% (with LMI)

    2 vote(s)
    5.3%
  6. Package benefits (split loans & credit card under a single package fee, discount insurance)

    2 vote(s)
    5.3%
  7. Fixed Rates

    2 vote(s)
    5.3%
  8. Variable Rates

    3 vote(s)
    7.9%
  9. Serviceability Criteria (please specify what you would like to see eg 80% of rental income)

    14 vote(s)
    36.8%
  10. No Upfront Fees

    1 vote(s)
    2.6%
Multiple votes are allowed.
  1. Kirsti327

    Kirsti327 Active Member

    Joined:
    2nd Jul, 2015
    Posts:
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    Location:
    Newcastle NSW
    Hi team,

    I work in a credit union and we have identified that it is a good time for us to gain some market share from investors while the banks are restricting their lending.

    As I am known as the most active property investor among the management team I've been tasked with redesigning our products to make them more attractive. I thought I would come to PC for some of my market research!
    There are obvious features like offset accounts and attractive interest rates but others I'mnot as sure about. I've set up the poll so that you can vote for three features and I'm interested in finding out what the most popular are. If I've missed something feel free to tell me in the comments.

    We are still more conservative than the banks, and due to our size we have exposure limits of around $1.2M per borrower so we are aiming at those that only have 2-3 properties and do not intend to do much lending for Sydney or Melbourne properties (as we do not have a presence in those areas anyway). APRA are comfortable with us growing our investor book subject to these restrictions but still want us to have differential pricing between owner occupiers and investors so I'm afraid that has to stay.

    Thanks!
     
  2. FireDragon

    FireDragon Well-Known Member

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    Location:
    Australia
    For myself, it will be 100% offset account, Interest Only and competitive interest rate. I would also like to select variable rates but it seems I can only select 3. Please note that my situation may be different to others because I've very low LVR (cash in the offset), so I don't need LVR up to 90% or 95%
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
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    Location:
    Perth WA
    As a broker in this environment there are a few niches that would be helpful -
    Low rate and no ongoing fees for investors
    Assessing external debt at actuals (you might not have any control over this but I'll throw it in any ways)
    High lvr lending - 95 plus fully cap lmi for investors (or even cap to 97%)
    An offset act is important but it won't make you stand out - nearly everyone had an offset.
    Good Cash out policy - again maybe not your area.
    IO - make it 10yrs not 5 and make the pricing difference as small as you're allowed.
     
    Last edited: 13th Aug, 2015
    legallyblonde likes this.
  4. spludgey

    spludgey Well-Known Member

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    Location:
    Sydney
    Why would IO attract a premium? It doesn't increase the risk to the lender (much) and it increases the money they make off the loan.

    For me it's mainly interest rate and assessment rate. How do you assess external debt? At what percentage do you assess rent? Do you make your calculators available?

    Also, how easy would it be to redraw equity?

    And, how difficult are applications? Some lenders make you go to a JP each time you want a loan. I can understand the first time, but not subsequent times.
     
  5. HUGH72

    HUGH72 Well-Known Member

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    Unless there is an appropriate cash out policy it would be off the radar for most serious investors
     
  6. Fargo

    Fargo Well-Known Member

    Joined:
    23rd Jun, 2015
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    Location:
    Vic
    You haven't listed the most important features to me, being accessabilty to manager at any time and service, ability to alter loan limits. It pisses me off when you have to talk to some-one different who has no idea of your situation, or any idea about everything, you get ran around in circles fobbed off and have to wait for phone calls that don't come. Even my accountant says some bank managers have no idea put to much emphasis on taxable income, even though its low because you have improved your ability to service, claimed a lot on depreciation, deffered income brought forward expenses. A bank needs to consider future income not rely on the past.
     
  7. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
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    Location:
    Canberra and Sydney
    Not so much features - but my dream bank would have the following policies:

    Good cashout policy - particularly above 80%
    Assess OFI debt at actual
    Assess own debt at actual
    DUA with LMI

    So I'm pretty much after the banking system circa 3 months ago please.

    Cheers

    Jamie
     
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  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
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    9,043
    Location:
    Sydney
    Hi Kirsti - good to hear you are looking to move into this space as investors need new lenders these days and also good to hear you are thinking about products and features.

    Firstly you have confused a mortgage with a loan. A mortgage is a charge that the lender takes and places on title. It is a charge for the loan agreement.

    Secondly investor loans don't really need many features other than Interest Only. An offset account is generally not needed as most would want to keep their cash in an offset account attached to their non deductible loan. But there are some people who do not have non deductible loans and would want an offset. So perhaps a cheaper rate for no offset would work, but it would be good if you had the 2 options.

    For serviceability - taking other repayments at the actual repayment is the ideal for borrowers. Many banks add a margin to the rate and then assess as a PI loan over the PI period and this can greatly effect serviceability and most start to fail after a few properties.

    Also where a person has a joint loan with another person, to another lender, it would be great if you could take into account the person's share of the debt rather than the total debt.

    Packages with credit cards etc are not really needed or desired by investors.
     
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  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    2,109
    Location:
    Melbourne, Nationwide
    All of the items mentioned are important at some point or another, but none of them is ever the most important component of a mortgage.

    The most important thing is simply determining if the lender will give the borrower the money or not. Everything else is secondary.

    This means competitive and clear serviceability and assessment policies.
    * 80% or rental income
    * Recognition of ongoing overtime via YTD figures on payslips.
    * Assessing existing debts within a reasonable policy (actual repayments would be especially great, but a 30% buffer would be acceptable).
    * Make documentation requirements reasonable, not excessive.
    * Direct and easy access to credit assessors.
    * Clearer risk assessment. This is something that tends to be very obscure with most lenders.
    * Upfront valuations. This is a bigger deal that it appears.

    Beyond that, cash out policies are especially important to investors. If an investor can't access their equity, they've effectively painted themselves into a corner.

    Offset accounts are very useful, but they don't need to be available in every instance. If you're going to have an offset account, it needs to work properly. Often smaller lenders have bad implementations of offset accounts when used in combination with interest only loans. Sub-accounts are a great feature that the CBA and Suncorp have done very well.

    Competitive interest rates should go without saying, but they don't need to be super cheap to get market share. Low fees are good

    95% LVR isn't important at all. The LMI premium beyond 90% is so high that it's not worth the cost.

    Packages are also over rated, especially for the fees they tend to charge. Look to Macquaries product suite for how to make this work.

    If you really want to gain market share, engage the broker channel. In the past credit unions have only done this halfheartedly. Brokers represent over 50% of the market and upwards of 80% of new to lender business. Credit unions tend to only engage one or two aggregators rather than the wider community. Open direct accreditation to anyone with their own credit license. Engage brokers, I haven't heard from most of the credit unions on my panel in years. If you do engage the broker channel, be serious about it. Many lenders engage when they want business and drop us when they don't. Brokers do have long memories.
     
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  10. tobe

    tobe Well-Known Member

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    897
    Location:
    Melbourne
    second what the other brokers here have said, but methinks you aren't after their feedback, more what investors think they want. Products, or features rather than policy.
     
  11. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Location:
    Sydney & Gold Coast
  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
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    Location:
    Perth WA
    Another product is a redraw that you can transact directly out of. Very handy for equity releases.
     
  13. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    As much as I'd like to see lenders adopting this for the improvements to serviceability, I don't think it passes muster as responsible lending. Macquarie's old policy was great, but there does need to be some reasonable buffers built into their systems. NABs system of a percentage loading on repayments is a reasonable compromise.
     
  14. Coota9

    Coota9 Well-Known Member Premium Member

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    Not a feature as such but I would say the asset the mortgage is tied too
     
  15. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    1,173
    Location:
    Adelaide, SA
    As most of the other brokers in the thread have touched on, to gain market share in the investor market policy trumps features. Repayments at actuals followed by consistant and liberal cash out policies are the biggest draw cards which puts lenders at the head of the investor pack.

    Bells and whistles aren't all that much these days - pretty much every lender offers a variation of all the above features, and are only minor matters compared to the real game changers.
     
  16. Redom

    Redom Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    863
    Location:
    Sydney (West) and Canberra
    Right now, if you want to win market share in the investment landscape, actual repayments will win you a lot of business. There's just a hole to fill in the market since APRA changes and there aren't many players operating in this space.

    However, if you did go down this route, you'd likely be getting investors with significant portfolios that have exhausted other options - doesn't really fit in the target market.

    Focus on building credibility and if possible, consistency. Having a good cash out policy today is all well and good, but it needs to be credible that it will likely last over a period of time. That includes budgeting for potential regulatory changes and being ahead of the curve.

    If your target market is 1-2 property investors, pricing is likely going to play a large role too. This could be a good area to focus on as it may fit the profile of investor your looking for (who typically are more price sensitive), and the market isn't very competitive in this area. Something similar to Gateway's offer would be handy way to get some market share.

    Cheers,
    Redom
     
  17. Elives

    Elives Well-Known Member

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    firstmac is the only decent lender left for actuals? is this correct?
     
  18. Big Will

    Big Will Well-Known Member

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    I think IO is a must, Easy cash out and competitive interest/low fees.

    If you allowed four I would pick rents serviceability.

    Offset like Terry wrote is only valid non-deductible debt until it is full.
     
  19. miked

    miked Well-Known Member

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    Melbourne
    What do you all mean by 'actuals'? (repayments/OFI debt/own debt)
     
  20. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    It means they use the actual repayments of debts with Other Financial Institutions (OFI), rather than loading in a buffer.

    Virtually all lenders now include a buffer of some sort on all debts to ensure you can afford the loan even when rates increase. Whilst I do agree with this policy, most lenders apply it in a very draconian manner which is unnecessary.
     
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