All Topics / Finance / Increase borrowing capacity

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  • Profile photo of jcso99jcso99
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    @jcso99
    Join Date: 2005
    Post Count: 95

    Hi all,

    I am Australian citizen who’s working in China. Currently, have 5 investment properties in metropolitan cities with good positive cashflow. All my IPs are held in discretionary trust with me as personal guarantor. Now, I have access to monies in China which would allow me to buy about 10 more properties assuming each property is asking for AUD 400,000. Total purchase price is 4,000,000 and at 80% LTV, the 20% deposit requirement will be AUD 800,000 which I have currently have access to in China and can be converted to AUD. The challenge is that when I approach AMP to get increase funding to my trust to buy the properties, they are refusing it because I have already reached my maximum borrowing capacity. So I propose to purchase the properties in a new trust with me as personal guarantor but they still refuses because AMP have already reached maximum borrowing capacity to me or my trust!

    Just a bit of background, I earn AUD equivalent of AUD 110,000 per annum pre-tax and all my 5 IPs are earning positive cashflow after debt servicing and expenses. How would I be able to increase my borrowing capacity and continue buying investment properties in Australia? Am sure a lot of professional property investors are experiencing this same issue and all feedback will be greatly appreciated. Thanks John

    Profile photo of jcso99jcso99
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    @jcso99
    Join Date: 2005
    Post Count: 95

    Just one more point to add, current lender is AMP for my 5 IPs. Thanks

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Hi John,

    It doesn’t matter whether you purchase under individual or trust when it comes to servicing.

    AMP is actually one of the more generous lenders when it comes to servicing however different lenders treat your overseas income different. Westpac and NAB are definitely superior in this space. CBA is quite handy when it comes to LMI loans but since your portfolio is at 80% – you definitely have more options.

    Are you an employee in China or Self Employed?

    TheFinanceShop | Elite Property Finance
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    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    AMP will only allow 10 IPs and then no more funds available.

    May be worth exploring moving a few of your AMP properties to another lender/s in order to accumulate more properties in order to avoid the serviceability ceiling later rather than sooner.

    You have highlighted the two most important criteria being serviceability and security (usually in the form of equity or cash or a combination) but your other outgoings other than property mortgages will have to be factored into the serviceability equation.

    • This reply was modified 8 years, 9 months ago by Profile photo of Colin Rice Colin Rice.
    • This reply was modified 8 years, 9 months ago by Profile photo of Colin Rice Colin Rice.

    Colin Rice | CDR Finance
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    Profile photo of jcso99jcso99
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    @jcso99
    Join Date: 2005
    Post Count: 95

    Hi Shahin, I am currently working for a logistic developer in China and the company is listed in Singaporean Exchange. My salary is denominated in RMB. The issue i have with Westpac and other lenders is that they completely disregard my overseas salary cos they don’t take into consideration RMB denominated income, which absolutely kills my serviceability issue. Any thoughts?

    Cheers
    John

    Profile photo of Finance BrokerFinance Broker
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    @kathlenee
    Join Date: 2014
    Post Count: 14

    Hi John,

    There are 3 issues to deal with here.
    1) Allows foreign income. Chinese RMB

    2) The debt ceiling. With any one lender this is usually around 2M. Sometimes less.

    3) A lender that will be comfortable accepting a discretionary trust setup as the borrower.

    You may have to spread out the purchase of 2 lenders possibly 3. As you have 5IPs with AMP you will need to find out what your maximum exposure is with them. You may be able to fit one IP with them and take the rest to Macquarie Bank. They are familiar with Discretionary trust setups but will have a maximum exposure of up to 2M. If you stay at just 1M exposure you will not have to be approved by the lender’s insurer. However they don’t accept foreign income at all so finding out if they can do this in house will need to be based on a case by case analysis, strength of the deal etc. All details of your application will have to be analyzed carefully to prove its strength to any one lender.

    Your positives are:
    20% deposit
    Already has an established relationship with an australian financial institution.

    If you’re happy to send in your info I could do the research for you. Message me if you’re interested.

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    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
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    As Colin mentioned AMP has a Max of 10 loans per client, also if your an non resident credit sometimes reduce this number due your exposure to AMP and risk.

    Regarding Westpac- They do accept RMB.
    In fact most lender that accepts foreign income would accept RMB, as china is the largest foreign investor in Aus.

    You have over 11 bask that would accept RMB to choose from, which one will depend on your serviceability with each lender.

    Mick C | Shape Home Loans
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    Profile photo of jcso99jcso99
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    @jcso99
    Join Date: 2005
    Post Count: 95

    Thanks for the feedback. I have a couple of follow up questions:
    1) RMB income – I remember speaking with a mortgage broker in mid-2013 and told them that my income is denominated in RMB and their reply was that no bank will accept RMB salary. Hence, I didn’t bother to explore other lenders cos I thought RMB denominated income is not welcome by Australian lenders. If that’s not the case, I might explore other options
    2) Maximum exposure to a single bank – What exactly does that mean? I am currently have exposure to AMP through my discretionary trust with me as personal guarantor. If I were to setup a new discretionary trust which I will use to buy new IPs but I have to act as personal guarantor, will that lender include potential new loans using new discretionary trust as under my exposure?

    If I want to continue buying IPs in discretionary trust structure (I am open to setting up new discretionary trust to purchase new IPs), which lender will be more suitable except for AMP? Your feedback will be greatly appreciated.

    Cheers
    John

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
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    Hi Shahin, I am currently working for a logistic developer in China and the company is listed in Singaporean Exchange. My salary is denominated in RMB. The issue i have with Westpac and other lenders is that they completely disregard my overseas salary cos they don’t take into consideration RMB denominated income, which absolutely kills my serviceability issue. Any thoughts?

    Cheers
    John

    Ok firstly the real issue with AMP is that they are a securitised lender and they do not have their own DUA. Even if your application ticks all the boxes – the underwriter can still turn around and say “nope not lending you any more money”. I seen this happen to quite strong applications.

    Not sure who has advised you that westpac do not accept RMB – as they do. I normally deal with HKD, Pound and SGD but know that they do RMB.

    Westpac has has short comings as well so you need to really sit down with a broker and establish a long term plan. For example, Westpac do not like it if your rental income is more than 50% of your total income.

    TheFinanceShop | Elite Property Finance
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    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    1. He probably didn’t realise CNY and RMB are the sane as most banks refer to it as CNY? Yes there are other options available but further research would be required to determine who else will go to 90% LVR beside St George.

    2. Max exposure is the limit of $ they will lend to you. The trust is a vehicle and you are the driver. Banks look who the driver is not the vehicle.

    AMP have a very generous calculator so from an acquisition perspective are better left to the end of the cycle rather than the beginning.

    Not sure if you are a DIY but feel to say that Mortgage Brokers can be compared to mechanics. If you get a dud you don’t crack open the manual and have a crack yourself, you find a better more skilled mechanic.

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
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    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hey Shahin

    I thought AMP had a DUA with Genworth up to 90%?

    That was the case a year or so ago – you could put up sub 90% deals and most of them would get signed off in house and not referred to LMI.

    Has this changed? I hope not :-(

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of PLCPLC
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    @plc
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    I thought the same thing Jamie with AMP. DUA to $850K at 90%.

    Haven’t done a deal with them since late last year so might have changed.

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
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    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
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    Their DUA is still $850,000 but thats not full DUA and sooner or later you will have issues when you go into LMI territory which I see quite often with lenders that don’t have full DUA.

    Since he has 5 properties already then it will definitely become an issue if he needs to access MI so AMP’s not the best fit for him.

    TheFinanceShop | Elite Property Finance
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    Profile photo of Jamie MooreJamie Moore
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    Yep agree with AMP and the OP.

    Good to know that AMPs DUA is still in tact though. Their DUA coupled with no credit scoring makes them a decent option for certain tricky deals.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of Finance BrokerFinance Broker
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    @kathlenee
    Join Date: 2014
    Post Count: 14

    Hi John,

    with 2) Each bank sees your setup under a discretionary trust structure as one. So setting up multiple discretionary trust structures and going back to the same bank will not do any good as they see you as the same guarantor on all the investments. The trust structure protects your assets and does not protect the bank. Whether you setup another discretionary trust or not does not matter to the bank. That decision will be yours to make as long as it still suits your investment strategy.

    As far as suggesting other lenders, As in the feeds above you have been given plenty of suggestions but whether your situation will fit the policy of any of these lenders will really be determined by how your case is presented to them and the research done. I would recommend talking to a broker as they will be able to do the research for you. But you may end up with a bad broker that could still make mistakes. So be careful when choosing one.

    Another reason to use a broker rather then doing this yourself is to protect your credit score with the banks. There are some that would not penalize you for too many enquiries with other lenders but not all of them do. So why limit yourself when you already have a tricky situation. Try and get it right the first time. Hope all this feedback has helped you make your decision. Good luck with your future investments!

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    Profile photo of jcso99jcso99
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    @jcso99
    Join Date: 2005
    Post Count: 95

    This might sound like a silly question but what is a DUA and how does it apply to me? Thanks

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
    Post Count: 1,099

    Thanks for the feedback. I have a couple of follow up questions:
    1) RMB income – I remember speaking with a mortgage broker in mid-2013 and told them that my income is denominated in RMB and their reply was that no bank will accept RMB salary. Hence, I didn’t bother to explore other lenders cos I thought RMB denominated income is not welcome by Australian lenders. If that’s not the case, I might explore other options

    John

    Can name around 7-8 lenders off the top of my head that deals and accept RMB
    – ANZ, Westpac, St George, AMP, Bankwest, CBA, Citibank, Homeside,…..

    But i would not advise you apply to every single bank and hope for the best as this would trash and kill your credit file; even thought the list of banks accept RMB it doesn’t mean they would necessarily like your deal or approve your loan- it will cone down to their credit policy based on your situation and serviceability and overall risk of the deal.

    For example, i can probably safely say Westpac would most likely be a no deal for your situation as you have 5 IP and your rentla income may be more than your standard income ( rental reliance policy) + your standard income is a foreign income as well.

    Regards

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Profile photo of Finance BrokerFinance Broker
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    @kathlenee
    Join Date: 2014
    Post Count: 14

    Hi John,

    Read this regarding Delegated Underwriting Authority (DUA). Explains everything you need to know including how it can help you.

    http://www.homeloanexperts.com.au/lenders-mortgage-insurance/delegated-underwriting-authority-dua/

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    Profile photo of Finance BrokerFinance Broker
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    @kathlenee
    Join Date: 2014
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    Doesnt anyone else use Macquarie? They can be as flexible as AMP within their DUA policy. I just did one this year for another investor with a hybrid trust setup. He just got his 11th property on portfolio using MACQ. He did not have the other properties with them yet. No foreign income though. I’m meeting up with Macq today and will find out about accepting foreign income, especially CNY. Will keep you posted.

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    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Macquarie does not have their own DUA at all but is starting to place more and more stuff on their balance sheet.

    Macquarie has niches but non-resident lending is not one of them.

    It’s hard recommending a lender when you have a tiny piece of the puzzle.

    The most ideal portfolio (servicing permitting) would have been to start at CBA and start high (they do 95% for aussie citizens working overseas) and then move onto another lender. The problem will lenders like NAB, AMP, etc is that they don’t do loans over 80% without policy exceptions. So if you ever need to take a property into LMI then you can’t with these guys.

    Just comes down to planning more than anything.

    TheFinanceShop | Elite Property Finance
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