{"id":8675,"date":"2016-07-25T01:00:28","date_gmt":"2016-07-24T15:00:28","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=8675"},"modified":"2016-07-25T01:00:28","modified_gmt":"2016-07-24T15:00:28","slug":"get-the-banks-wanting-your-business","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/get-the-banks-wanting-your-business\/","title":{"rendered":"Get the banks wanting your business – Michael Yardney"},"content":{"rendered":"

 
\nWith today\u2019s low interest rates and cheap debt, many investors are finding themselves in a favourable cashflow position. But as the banks tighten their purse strings, investors need to think outside the square when it comes to gearing into further properties. So we give you eight strategies to make sure an invisible serviceability ceiling doesn\u2019t stop you from growing your property portfolio. Michael Yardney<\/strong><\/a> helps with that advice.<\/p>\n

<\/h4>\n

Transcript:<\/strong><\/h4>\n

Kevin:<\/b>\u00a0 We\u2019ve all heard that APRA\u2019s restrictions have caused the banks to tighten the screws and make it even harder for many investors to get their new loan or refinance their existing loan. I did an interview that we ran on the show recently with Andrew Mirams from Intuitive Finance where he looked at the difference between serviceability and affordability.
\nMichael Yardney from Metropole Property Strategists joins me.
\nMichael, I\u2019m just keen to know from you, what are the strategies you would suggest someone put in place to make themselves more attractive to the banks?
\nMichael:<\/b>\u00a0 Kevin, I heard that interview with Andrew, and the issue was that there was somebody who\u2019d written in who had strong cash flow, had a large amount of equity, but yet the banks despite today\u2019s low interest rates weren\u2019t prepared to lend him more.
\nAnd that\u2019s happened, as you said, partly related to APRA\u2019s restrictions. They measure your serviceability not on today\u2019s prevailing interest rates of, say, 4.5% but can you repay the debt at 7.5% or 8% and principal and interest?
\nYou\u2019re right, Kevin. There are some tricks you can use to make your figures look better to the bank.
\nKevin:<\/b>\u00a0 What are they, Michael?
\nMichael:<\/b>\u00a0 I think one of the first ones you should look at is your credit cards, because the banks take into account your credit limits. Even if you\u2019ve never borrowed to the limit, they figure that you can go out and buy something expensive tomorrow.
\nIf you have multiple credit cards, maybe you get rid of them and stick to one, and if you have a credit limit of $10,000 that you\u2019ve never used that much, cut it back to a much lower amount and then all of a sudden, they will see your serviceability as higher, Kevin.
\nKevin:<\/b>\u00a0 That\u2019s a great tip. What else, mate?
\nMichael:<\/b>\u00a0 The other thing is consolidate your unsecured debts, because what they\u2019re going to do is actually ask you to do a balance sheet of all your income, your assets, your outgoings, your liabilities, including other debts. Sometimes people have high-interest credit card facilities or other loans and it\u2019s often good to try to consolidate them onto maybe a lower interest rate facility and make yourself more attractive to the banks.
\nKevin:<\/b>\u00a0 Another thing, too, Michael, I guess we think of ourselves as individuals but the bank really looks at us as a business. I guess we therefore have to act and put forward a business front when it comes to things like our paperwork.
\nMichael:<\/b>\u00a0 Well, Kevin, if you can\u2019t provide the last few pay slips, if you don\u2019t have all the details of any bonuses that you\u2019ve had, it makes it really hard to do an accurate serviceability picture. Therefore get all your paperwork in order. If you have a proficient finance broker, they\u2019re going to make sure that you have that before they even submit your loan to the bank. It makes you look more effective and efficient, Kevin.
\nKevin:<\/b>\u00a0 Michael, what about shopping around? Are you raising your head then if you\u2019re looking around at the different loan products and you make applications? Is that a bad thing?
\nMichael:<\/b>\u00a0 That\u2019s a bad thing by making applications, but you should definitely be shopping around and looking for the right loan product. But Kevin, that doesn\u2019t mean the cheapest interest rate, because I\u2019d rather have a bank that will lend me another $300,000 or $400,000 and spend another quarter of a percent interest to get that than to get the lowest interest rate and not be able to get another investment property.
\nThat\u2019s where a proficient mortgage broker will help you identify the loan products most suited to your needs with features that potentially work to increase your financial capacity. Different banks will look at your serviceability differently.
\nBut no, don\u2019t go to different banks and apply, because if you do, that shows up on your credit score and then they\u2019ll wonder, \u201cHey, why are they doing that?\u201d
\nKevin:<\/b>\u00a0 Yes. I remember when we started borrowing money to invest in property, albeit it was a principle place of residence, but the banks in those days didn\u2019t take into account Carolyn\u2019s wage or Carolyn\u2019s income. That\u2019s all changed, hasn\u2019t it?
\nMichael:<\/b>\u00a0 Very much so. If you\u2019re going to be buying a property with your life partner, your spouse, a family member, if you can show that there are two people who are going to carry the burden of the serviceability, it suddenly increases your ability to get loans, Kevin.
\nKevin:<\/b>\u00a0 What about cross-collateralization?
\nMichael:<\/b>\u00a0 Well, Kevin, we\u2019ve spoken about that often in the past, and what we\u2019ve said is in general, we\u2019d like to avoid it. But sometimes it is unavoidable, and by offering additional security to the banks, it can occasionally allow you to borrow a higher LVR. So if it\u2019s the last resort and that\u2019s what you need to get into the market and take advantage of the opportunities, then yes, sometimes you just have to do that, Kevin.
\nKevin:<\/b>\u00a0 Do the banks like me taking loans over a longer period, Michael?
\nMichael:<\/b>\u00a0 Kevin, often we think about 20- or 25-year loans, but there is a small group of lenders who let you borrow for up to 30 years, and I think there are one or two that offer even 40 years for the right candidate. Probably not for you or me, Kevin, at our age, but that extra 10 years saves hundreds off your monthly repayments.
\nOver the long term, of course, you\u2019re paying a lot more because you\u2019re paying interest for longer. But I wouldn\u2019t be suggesting you keep that loan for 30 years. Maybe in three or four years\u2019 time, you\u2019d revisit it, you\u2019d refinance it, you\u2019d see how things are going on. But it\u2019s definitely a way of making it more serviceable by actually having longer loan terms.
\nAnd, Kevin, there\u2019s another one. There\u2019s the concept of locking in on interest rates today. As I said a moment ago, the banks are looking at your serviceability based not on the current 4.5% or 5% interest rates but what if interest rates go up? If you lock in a portion of your interest rates \u2013 and I\u2019d be suggesting you get good advice to see if that\u2019s appropriate for you \u2013 then the banks can\u2019t say, \u201cHey, you have to be able to service it at 7% or 8%.\u201d It makes it more serviceable because a portion of your loan is already locked in as a rate that\u2019s fixed for the next three to five years.
\nKevin:<\/b>\u00a0 Michael, this is all about making yourself look as attractive as you possibly can to the bank, isn\u2019t it? Therefore showing that you\u2019re a good saver, is that important?
\nMichael:<\/b>\u00a0 There are two elements to that, Kevin. First of all, showing a good savings record makes you attractive. But the other is giving yourself more deposit, more equity to get going works.
\nI believe you should be spending less than you earn, saving that, and maybe if you\u2019re starting off, putting it in an offset account against your home loan if you have one or into an interest bearing account if you don\u2019t have any other loans that you can take advantage of \u2013 and get a good track record, a good savings record, but also it\u2019s a great discipline moving forward as a property investor, Kevin.
\nKevin:<\/b>\u00a0 Michael, we\u2019re out of time but great talking to you, as always. Thank you very much, and we\u2019ll look forward to catching you again soon.
\nMichael Yardney has been my guest from Metropole Property Strategists. Thanks, Michael.
\nMichael:<\/b>\u00a0 My pleasure, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":"

  With today\u2019s low interest rates and cheap debt, many investors are finding themselves in a favourable cashflow position. But as the banks tighten their purse strings, investors need to think outside the square when it comes to gearing into further properties. 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