Lending

[Frezzinghot]

Its seems our bank doesn't want us to own anymore property, the hoops we had to jump though to get 500k were unbelievable.

Needed an extra 70k on a deal we had and were declined, it felt like pulling teeth, it seems they are using every trick in the book not too lend.

Is anyone finding this at the moment on IP lending? Im looking in South Auckland and mostly junk around atm and nothing near 500k Im looking for. I think a LOT of people are holding off selling property atm and waiting to see the outcome of the covid 19 scamdemic!

These things are NOT real world scenarios, such as using debt servicing calculations based on:

1. floating rates not current rates (currently using 4.6%!

2. using P&I rates when calculation on servicing

3. Using the lowest rental appraisal range (also no justification or explanation of WHY they would use the figure of the lowest appraisal)

4. again why are they using 70% of total rental income in their calculations??

5. using ALL existing rental loans based on P&I payments and not on IO which all of my loans are currently on.

We are good borrowers, NEVER missed a payment, have secure jobs after covid and have little to none personal debt (excluding PPOR) which the lending is with this bank.

They could have just lent the 70k and we would be another property up! Just ridiculous the restrictions banks are putting on investors, bet if we asked for a 1mil to buy our own home they would be falling over themselves to lend to us!

Feeling over it as you try to get ahead and all you see are damn roadblocks! Maybe Labour have finally got to the banks!

[Rosco]

Have you looked at Resimac or other second tier lenders? - some rates are around 3.39% at the moment

Have you used a broker?

Have you split into multiple banks?

All of these things can help

Ross

[Frezzinghot]

On this occasion my main bank was used and were the only ones to front up with the 500k, I have about 530k in total to spend. Mind, we should see some better opportunities to purchase in the next few months, but being in Auckland does make it tough, hopefully the market falls over winter so that the deals appear more freely.

Ive used brokers about a year ago but may need to go back to them for 2nd tier lending. Over the main banks atm.

[Anthonyacat]

Its seems our bank doesn't want us to own anymore property, the hoops we had to jump though to get 500k were unbelievable.

These things are NOT real world scenarios, such as using debt servicing calculations based on:

1. floating rates not current rates (currently using 4.6%!
2. using P&I rates when calculation on servicing
3. Using the lowest rental appraisal range (also no justification or explanation of WHY they would use the figure of the lowest appraisal)
4. again why are they using 70% of total rental income in their calculations??
5. using ALL existing rental loans based on P&I payments and not on IO which all of my loans are currently on.

I am in a similar situation to you at the moment, pushing against the edge of my servicing capacity. But as I see it, if the banks were being unreasonable with their lending criteria, other institutions would pop up with attractive offers to lend you the money that you so obviously qualify for. To some extent these exist with the non bank sector.

Of the 5 reasons above, the only one I don't agree with is the high testing rates, you've said 4.6% but I think it's actually closer to 6.5% that they use to test servicing. That's just a silly rate to use, they know with almost complete certainty that interest rates will be low for the next 3-5 years, and after that long your entire job and living situation could be different, can't predict that far.

Using P&I rates on all loans is sensible, they'll eventually be made P&I and you need to be able to survive. Using the lowest rental appraisal range is sensible, that's what you might rent it for. When you have an actual tenancy agreement they'll use that instead.
And 70-80% of rental income is pretty accurate really. When you consider a week or two's vacancy (2-4%), then insurance (2-4%), rates (5-8% in Auckland, up to 10-20% regionally), a little bit of repairs (2-5%), possibly PM fees (6-9%), you will never get 100% of the rents received available to service the loan.

What I'd like to see is a little bit of consideration for future growth or flexibility in income, or that if times were to get hard most people's expenses could reduce substantially. If I ever hit another rough patch financially I can easily go get a PAYE job paying $80-100k (with a bit of luck maybe higher) on top of my existing accounting practice income. And my wife could bump her work back up to full time. Even quicker than that, we could instantly find some expenses to cut.

[Frezzinghot]

I am in a similar situation to you at the moment, pushing against the edge of my servicing capacity. But as I see it, if the banks were being unreasonable with their lending criteria, other institutions would pop up with attractive offers to lend you the money that you so obviously qualify for. To some extent these exist with the non bank sector.

Of the 5 reasons above, the only one I don't agree with is the high testing rates, you've said 4.6% but I think it's actually closer to 6.5% that they use to test servicing. That's just a silly rate to use, they know with almost complete certainty that interest rates will be low for the next 3-5 years, and after that long your entire job and living situation could be different, can't predict that far.

Using P&I rates on all loans is sensible, they'll eventually be made P&I and you need to be able to survive. Using the lowest rental appraisal range is sensible, that's what you might rent it for. When you have an actual tenancy agreement they'll use that instead.
And 70-80% of rental income is pretty accurate really. When you consider a week or two's vacancy (2-4%), then insurance (2-4%), rates (5-8% in Auckland, up to 10-20% regionally), a little bit of repairs (2-5%), possibly PM fees (6-9%), you will never get 100% of the rents received available to service the loan.

What I'd like to see is a little bit of consideration for future growth or flexibility in income, or that if times were to get hard most people's expenses could reduce substantially. If I ever hit another rough patch financially I can easily go get a PAYE job paying $80-100k (with a bit of luck maybe higher) on top of my existing accounting practice income. And my wife could bump her work back up to full time. Even quicker than that, we could instantly find some expenses to cut.

Have spoken with a broker today and 2nd tier lending is 3.49% atm, so might end up going with the expensive money to get the next property.

[Anthonyacat]

Have spoken with a broker today and 2nd tier lending is 3.49% atm, so might end up going with the expensive money to get the next property.

A move I'm considering too. A couple years ago I was stoked to get a 3.99% mortgage. To baulk at 3.5% now is both natural and very silly.

[Frezzinghot]

Also, a few properties are falling over because of finance, mainstream banks are making borrowers jump through hoops now and only those with strong cashflow are getting any decent money, I have applied for 2nd tier money now as Im over these mainstream banks unrealistic demands!

[Frezzinghot]

A move I'm considering too. A couple years ago I was stoked to get a 3.99% mortgage. To baulk at 3.5% now is both natural and very silly.

Yes, we all want 2-2.5% loans, but no good to you if you can't continue to build a portfolio! Its the same old situation with the mainstream banks, when the recession hits they all go into lockdown (wow what a word)
And as soon as there is a sniff of a recovery they open up on the restrictions. Its hard getting ahead with lending like this!

[HermanZ]

when the recession hits they all go into lockdown (wow what a word)
And as soon as there is a sniff of a recovery they open up on the restrictions.

What do you expect them to do? The opposite!

HermanZ

[Frezzinghot]

What do you expect them to do? The opposite!

HermanZ

No, but to tar everyone with the same brush is insanity IMHO. I can only use our current situation and credit rating, in the many years since we started investing we have not missed one mortgage payment. Surely that counts for something!

[donna]

An article on oneroof says the interest rate used for testing is 7% so it doesn't matter if the current rate is 2% banks will test at 7%.

What's ridiculous is investors are a better bet for lenders as the risk is spread. Owner occupiers are far more risky with the one asset and fixed income as an employee.

cheers,

Donna

[Anthonyacat]

No Donna, what's completely ridiculous is that my accounting self employed income is considered risky, but if I were to hire a junior accountant to assist me, their income would be "nice safe PAYE salary". Can guarantee if my business goes bad, they lose their income before I lose mine.

[brokerman]

All banks use servicing rates of 6.65% or more. We use a 6% rate with a non bank lender at pretty much bank lending rates. They will also lend to 80% on a standalone investment property which most banks won't. Happy to run the numbers.

[Frezzinghot]

Looks like Resimac is the place to go, the rest are in the too hard basket!
https://www.landlords.co.nz/article/...-for-investors

[brokerman]

Looks like Resimac is the place to go, the rest are in the too hard basket!
https://www.landlords.co.nz/article/...-for-investors

Resimac are the best 'all status' lender in NZ. 80% for standalone investment is a key product, under 4% too!