Forums / Getting Technical / Finance / Lenders tighten serviceability screws again

Viewing 11 posts - 1 through 11 (of 11 total)
  • Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    The NAB group of Companies have announced effective 12 Dec they are once again tightening the serviceability screws.

    They are introducing an amended Living Allowance scale which is progressive based on the borrowers level of income (More expensive for a single person on $150K than one on $90K) and more importantly changed how they assess external debt.

    In the past NAB and their spin offs (i.e NAB Broker, Advantedge, UBank etc) have taken the actual debt and applied a 28% loading to the interest rate which in many cased worked out better than a flat 7.4% P & I.

    They are now moving to a calculation based over the remaining P & I term i.e if you have a 25 year investment loan with 5 years interest only the external debt will be worked on a 20 year P & I repayment.

    Obviously this reduces the amount an investor can show they can service and appears to be another over reaction.

    Cheers

    Yours in Finance
    0-40 Properties in a decade. Ask me how.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,065

    There goes one of the last remaining “generous” servicing calcs :-(

    It’s becoming harder and harder to own multiple properties these days. I don’t know how it’s going to be possible when/if rates go back up.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of dboyle794dboyle794
    Participant
    @dboyle794
    Join Date: 2015
    Post Count: 7

    Us investors are resilient like cockroaches we will survive. These changes #iss me off because its the first time investors that will struggle to become successful.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,065

    Us investors are resilient like cockroaches we will survive. These changes #iss me off because its the first time investors that will struggle to become successful.

    Absolutely – especially if you’re on an average income. I’m even seeing some clients on high incomes hit a borrowing capacity wall early because of these changes.

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Us investors are resilient like cockroaches we will survive. These changes #iss me off because its the first time investors that will struggle to become successful.

    Absolutely – especially if you’re on an average income. I’m even seeing some clients on high incomes hit a borrowing capacity wall early because of these changes.

    Exactly – I’ve seen a surge of business coming from borrowers who previously went to branch for all their lending but are being told NO MORE. It’s getting harder and harder for someone to blindly stumble their way to success with the screws being tightened so much.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of DeanCollinsDeanCollins
    Participant
    @deancollins
    Join Date: 2015
    Post Count: 372

    How does the “Living Allowance scale” work?

    Shouldn’t people who have little personal ‘non investment debt’ (eg scrimpers like me who invest a lot of post tax earnings) be judged on actual debt and not “ordinary disposable debt based on total salary” norms?

    Reconfiguring it so that loans are P+I @7.25% is fine (and probably prudent considering what possibly could happen over the next 10 years).

    Basically it means you can just rely on capital growth to ‘ease your way out” of leverage……based on how its projected to grow also not a bad idea.

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    The idea is that those with high incomes will generally have higher living standards/expenses. It’s more likely they will have more expensive private school costs, cars, holidays etc.

    Yes some people may be tight with their money in any income bracket, but the financial system is meant to work on the majority for stability, than individuals.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of DeanCollinsDeanCollins
    Participant
    @deancollins
    Join Date: 2015
    Post Count: 372

    @corey, thanks for the tip. Interesting thinking….wonder if it will cost NAB some profitability…..

    BTW is it just me or are other people really missing the Thumbs Up/Thumbs Down feature :(

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    @corey, thanks for the tip. Interesting thinking….wonder if it will cost NAB some profitability…..
    BTW is it just me or are other people really missing the Thumbs Up/Thumbs Down feature :(

    Just about all the lenders are having to review their living expenses calculations, so this style of calculation will most likely become the norm in the near future – so I doubt it’ll be a localised issue for NAB. They still maintain one of the higher borrowing policies for borrowers with existing debt with other lenders.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of PLCPLC
    Participant
    @plc
    Join Date: 2012
    Post Count: 400

    In the past NAB and their spin offs (i.e NAB Broker, Advantedge, UBank etc) have taken the actual debt and applied a 28% loading to the interest rate which in many cased worked out better than a flat 7.4% P & I.
    They are now moving to a calculation based over the remaining P & I term i.e if you have a 25 year investment loan with 5 years interest only the external debt will be worked on a 20 year P & I repayment.
    Obviously this reduces the amount an investor can show they can service and appears to be another over reaction.
    Cheers
    Yours in Finance0-40 Properties in a decade. Ask me how.

    Richard, I haven’t used NAB Broker for a while but the way I read their policy, the external debt is still assessed the same as before, and it’s only proposed new borrowings that are affected by the new servicing calculation based on remaining P&I term (confusing I know). The new serviceability calculator still adds a loading of 28% to existing debt so it seems it may be the case.

    Cheers

    Tom

    • This reply was modified 3 years, 6 months ago by Profile photo of PLC PLC.

    PLC | Phoenix Loan Consulting
    Email Me | Phone Me

    Melbourne based Mortgage Broker | Making Finance Simple

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    In the past NAB and their spin offs (i.e NAB Broker, Advantedge, UBank etc) have taken the actual debt and applied a 28% loading to the interest rate which in many cased worked out better than a flat 7.4% P & I.They are now moving to a calculation based over the remaining P & I term i.e if you have a 25 year investment loan with 5 years interest only the external debt will be worked on a 20 year P & I repayment.Obviously this reduces the amount an investor can show they can service and appears to be another over reaction.CheersYours in Finance0-40 Properties in a decade. Ask me how.

    Richard, I haven’t used NAB Broker for a while but the way I read their policy, the external debt is still assessed the same as before, and it’s only proposed new borrowings that are affected by the new servicing calculation based on remaining P&I term (confusing I know). The new serviceability calculator still adds a loading of 28% to existing debt so it seems it may be the case.
    Cheers
    Tom

    Correct – so not a major issue in the scheme of things.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

Viewing 11 posts - 1 through 11 (of 11 total)

You must be logged in to reply to this topic.