With all the ghost noise about Banks pushing to lowering the assessment rate........

Discussion in 'Loans & Mortgage Brokers' started by Rolf Latham, 10th May, 2019.

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  1. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Adelaide Bank has just cut servicing for loans > 90 %, by quite a margin. This market is often where the first home buyer lands, the sort of 92 to 93 % lvr range.

    ta
    rolf




    Please be advised that for any application submitted from Thursday 16 May 2019, the minimum serviceability ratio for applications above 90% LVR (LMI inclusive) has been increased to 1.25.
     
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  2. Coota9

    Coota9 Well-Known Member

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    For Investment & PPOR Loans?
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    PPOR

    ta
    rolf
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Keep in mind that's for loans above 90% LVR, such as 90% + LMI. Most lenders are already assessing these loans at that level.

    Most loans I write above 80% are 90% inclusive of LMI (88%+LMI). I don't recall an investment loan I've written above 90% for many years now.
     
  5. Lucki

    Lucki Active Member

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    So what lenders these days produce better serviceability in the general sense?

    I know the likes of Firstmac are good, but are there any others in the market who produce favourable outcomes other than Liberty & Pepper and still provide competitive rates?
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    The 3rd tiers arent much better for owner occ lends above 80 %, or mostly even sub 80 % lvr for an average income mix

    FM can be good for someone on comm, lots of OT etc

    but in balance, these lenders are more suited to people that have loan exposure already, either Ips or PPOR.

    Unicorn finance ............. highest servicing plus great rates, choose one im afraid

    ta
    rolf
     
  7. Lucki

    Lucki Active Member

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    Unicorn finance? Never heard of them... please do share more :)
     
  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Follow the glitter rainbow up the horses backside. :p

    There's no single answer to your original question. I've seen plenty of scenarios where one or two of the Big 4 banks service better than Firstmac or Liberty. It comes down to the individual circumstances.
     
    Last edited: 10th May, 2019
  9. Lucki

    Lucki Active Member

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    The scenarios you have seen do not apply to every one in the general sense. I mean if someone is going to FM, Liberty et all, it generally means they are falling short with the big banks on serviceability isn't it. With FM being the better of them in terms of rates?

    What I am trying to ascertain is for someone with a normal income mix with no deductions and say one or two IO investment properties and no other debt, who are the favorable lenders these days.
     
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  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    FM, Pepper, Liberty, Bluestone, Latrobe and some other small funders.

    In essence, lenders that will look at existing payments as they are on say IO and load them by a l"ittle", vs APRA reg lenders that need to load them at PI at or around 7.25 assessment rate


    ta
    rolf
     
  11. Lucki

    Lucki Active Member

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    So is there much hope or is it pretty much doom & gloom for people looking to invest beyond the first couple of properties?
     
  12. euro73

    euro73 Well-Known Member Business Member

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    There's a very straightforward alternative available to those wanting to acquire and hold a portfolio beyond 1 or 2 properties. Unfortunately it isn't a miracle solution to servicing caps that works quickly. It is nevertheless a solution that works over an extended period of time.

    Pay down debt .

    The previous generation made money by purchasing vanilla yielding/high growth property. They waited for those values to rise, then either sold to harvest the equity, or borrowed to harvest the equity - and repeated. This enabled them to not only build large portfolios, but because IO didn't hurt borrowing capacity, it also enabled them to HOLD large portfolios.

    As we all know now, operating such a model today is a wrecking ball to borrowing capacity and to holding costs for all but the deepest of deep pockets. First there is the limited borrowing capacity. You simply cant borrow as much as previous generations. Then there is the issue of holding costs; You will be forced onto P&I at some point , meaning you will run at a much larger loss than under IO, and the extra costs incurred by the Principle repayments will be non deductible. If you are also paying down other non deductible debt like PPOR mortgage, credit cards, personal loans etc, this creates a burden too great for most to cope with.

    If you buy properties that can run P&I from Day 1 , or close to it - you will solve the holding cost issue, and as you start making inroads into the debt simply by forced P&I amortisation, you will eventually restore borrowing capacity as well.

    It's a very simple concept, but it appears to be very difficult for most to accept and embrace. They still believe they can beat the regulators rules using speculative strategies ... so they continue buying vanilla yields hoping for growth, rather than buying cash cows and paying them down.

    The only way this is going to change is for a reversal of APRA's policy settings. We would need a return to "actuals" or at the very least a significantly lower assessment rate , in order for speculative strategies to start working again. A modest reduction to the assessment rate wont do it. It may arrest the correction, but it wont supercharge borrowing capacity enough to drive prices up by multiples, like the pre APRA calculators did over 25-30 years.

    Cash Cows. Pay down debt. Holding cost risks removed. Borrowing capacity restored in time.
     
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  13. Rex

    Rex Well-Known Member

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    So do most non-bank lenders still assess existing loans on current repayments + small buffer? Or have most of the non-banks moved to an assessment rate also?
     
  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Many of the non banks have an assessment rate for thier NEW debt, and in some cases their existing debt.

    FM, do assessment debt on all exist and new

    Pepper I recall do a 20 % loading on all existing, and 20 % on their own at their PI rate

    Liberty load their existing at a small margin only, so if IO

    In this stratosphere of lending, one would need specific lending and structure advice, what works one week is a no no the next


    ta

    rolf
     
  15. euro73

    euro73 Well-Known Member Business Member

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    Liberty takes OFI debt at "actuals" but loads existing Liberty debt by 2%. but no construction available. Funded by US based private equity- Quaker something or other venture capitalist LLC ...

    Pepper uses actuals + 20% and they offer construction - oddly enough their construction funding comes from NAB , yet they are still able to use actuals + 20....

    Bluestone uses actuals but no construction available ... funding is all Australian based

    There's also Latrobe. I don' t deal with them, but I know they used to take actuals...not sure whether they still do that or not ???? Even if they still do it, their calc didnt used to allow any neg gearing addbacks so it rendered "actuals" pretty ineffective anyway .... the calculator wasnt really any more generous than majors because of it - in spite of "actuals" ..... .so unless that's changed you wouldnt get especially far with them. Maybe someone more familiar with them can comment on whether thats still the way they do things...

    FirstMac assesses at 7% P&I for new debt and for existing debt , but they take 7% for NG addbacks as well... and they offer construction. But their HEMs are pretty exxy.... so they generally provide a bit more capacity than the pack, but as a general rule , for INV lending you've got just about everyone sort of bunched into a pack ...... then FM is a little more generous.... then you've got Pepper, Bluestone and Liberty way ahead....

    To fine tune the conversation further , Bluestone has expensive fees to get in .... 0.75% of the loan amount as a risk fee + @ $1800 in establishment fees /valuation fees. But they dont have the professional investor premium that Liberty has or the sizeable IO loading either........

    Having said that- if you give Liberty your PPOR ( which can be as low as 3.99% but doesnt have a transactional offset) the professional investor loading is waived..... so depending on circumstances Liberty can be very useful.... or Blusetone can be useuful. Or Pepper can be useful. How you use the Pepper/Liberty/Bluestone combo can vary , depending on circumstances .... such as ; how many properties do you have already? do you have a PPOR? do you need construction finance? etc etc etc....

    Then there's volume limits. Liberty needs senior credit to sign off over 1.5 Million exposure, and if you want to go above 2 Million you need to pay a fee of ( $1K I think?) to have it sent to the executive committee/board .... sitting on that committee is Sherman Ma , who founded Liberty. They pull the deal apart and it takes 4-6 weeks to get an answer, and the success rate is less than 5% . In other words, the decline rate is 95%. Basically, dont bother

    For raw, flat out borrowing capacity though - Bluestone and Liberty are generally a little bit ahead of Pepper for most scenarios...

    Fun, eh?
     
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  16. euro73

    euro73 Well-Known Member Business Member

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    Meanwhile - ING really don’t want any business :)

    Their servicing calc was already bottom of the barrel - just got a touch worse ...

    DB430975-0E88-44D1-AFC8-43277B75855C.png
     
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  17. Rex

    Rex Well-Known Member

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    Plenty of incentive to not have all (or any) of your business with ING.

    I've seen a few non-banks (I think) offering pretty competitive 2 & 3 year fixed rates. Mobs like Pacific Mortgage Group, Reduce Homeloans, Loans.com.au come to mind.
    Any idea if these lenders use actuals for existing debt?
     
  18. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Nope :)

    Servicing for Loans.com is likely the best out of that lot, but we are asking for the BMW at a Camry price

    ta
    rolf
     
  19. euro73

    euro73 Well-Known Member Business Member

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    None of those are non banks. They are mortgage managers. Just like Aussie... another mortgage manager who people think are a non bank. They are not. Here's how Aussie and other Mortgage Managers work. They get their money on a wholesale rate from a real funder. They rebadge it as their own, and sell it to you . Let me use a couple of examples that are well known brand names.

    1. Aussie. Aussie used to get its money from Origin ( which was ANZ's wholesale arm back in the day. It isnt any more- its owned buy Columbus Capital now) and from PUMA ( Macquarie's wholesale arm) stick their logo on it and sell it at a retail rate. They are then responsible for all after sales service such as issuing mortgage statements, dealing with your enquiries etc... It creates the impression that Aussie is lending you the money. But if you look at your mortgage documents you'll see otherwise. These days they get their money from their new owners- CBA. They do the same with credit cards and car loans. Next time you see someone with an Aussie credit card, flip it over and take a look at the issuer name. It will be ANZ or Westpac. Similarly, next time you meet someone with an Aussie car insurance policy....read it closely and you'll find its CGU. Virgin Money used to issue Westpac credit cards as well. Woolworths Money uses Macquarie for credit cards .... see how it works?



    2. Wizard. Remember them? Another mortgage manager. They got all their money from GE Money back in the day. The GFC came along, smashed GE Money badly, and they pulled all money out of all non US markets so they could plu all the leaks in the US... and it left Wizard ( amongst others) high and dry... so Aussie John sold 49% of Aussie to CBA to raise the cash to buy the Wizard business on the cheap and its franchisees were given two choices.. FIFO. Fit in or F Off. Most moved to Aussie - they had no choice really. He owned their businesses wholus bolus . It was a ruthless business deal by John and he made squillions....

    So with regard to Reduce and Pacific, what you have to understand is that they are both Mortgage Managers putting their brand on someone else's money . If you look on the Reduce website it explains that they get their money from other lenders . Specifically their website says "Our funding is powered by wholesale lenders such as Bendigo Adelaide Bank, Bank of Sydney, Origin MMS, Pepper Money, LaTrobe, Sintex and BC Funding. They enable us to access competitive alternatives through a process called Securitisation"

    My understanding of Pacific is that they are funded by NAB's wholesale arm, who also fund UBank and ljhooker and loanmarket and choicelend and others....

    loans.com.au is a little different. It is wholly owned and funded by Firstmac , who are an actual non bank lender. ie They have their own funds. Their team is in the same building as Firstmacs team on Queen Street, Brisbane. In fact, Firstmac owns the building as well.. ;) Besides the logo, the products are exactly the same. Because of that, loans.com.au uses the firstmac calc, which will be the best of that bunch - except for whatever product Reduce uses Pepper funding for. If Pepper if providing funds for one of the Reduce products, you can be sure it wont be for the low rate products ...


    So hopefully that helps you understand the difference between non banks and "non banks"

    In the end, if you want to test your absolute max borrowing capacity, you need to speak to someone about running your numbers with Pepper, Liberty or Bluestone, taking into account what I have outlined above. That information above is pretty well the A-Z of things. I didnt forget to include some non bank lenders I didn't leave anything out :)
     
  20. Jingo

    Jingo Well-Known Member

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    Terrific post Euro. Investing is a long term game and staying in the game is huge part of being successful. Pays to remember/revisit old fashioned maxims for building wealth over the long term.
     
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