Why Bank Policy is Going to Matter Even More in 2018

Since the Introduction of APRA regulations in 2015, the overall market has flattened due to tougher lending criteria resulting in borrowing capacities greatly diminishing.

There are no signs these regulations will disappear this year. However, what we have seen during this time, particularly over the last 6 months are smaller lenders, not governed by APRA creating niche policies to capture certain segments of the market.

This post will give you some insight into the dramatic differences in borrowing capacities between major and smaller lenders…

Case Study

The other day I was approached by an individual who had purchased an off-the-plan property in Sydney for $650,000 and needed a loan of $520,000 in order to settle the transaction.

He was a tradie, single, renting and earning a base income of $80,000 with overtime of $25,000. He also had another investment property that had a debt of $430,000 against it.

Below are the two screenshots from the respective lender's assessment calculators I received when I was completing my research.

Major Lender

Max Borrowing Capacity - $192,721

Smaller Lender

Max Borrowing Capacity - $546,400

Yes that’s not a mistake, there is a $353,679 difference in borrowing capacities between the major and smaller lenders.

Why Such a Difference?

One of the big changes to the majors post APRA regulations is how they assess loans you might have with other lenders.

Before the changes, lenders would take whatever the actual loan repayments were for the loans you had against a security properties they weren’t taking over.

However, these days they will now assess all loans between 7-8%.

The smaller providers don’t. They’ll still take loans you have with other lenders at whatever the actual repayments are.

Some smaller lenders will also accept 100% of overtime income as opposed to shading it down to 80%, which is what the majors do. In this case study, because the applicant was a tradie, this again made a significant difference.

Recent reports have noted a significant cool off in the Sydney market and I’m sure there will be many buying opportunities out there for shrewd investors. However, the difference to your success this year may come in your ability to choose a lender who has a unique niche rather than focusing solely on rate.

Kind regards,

Tim Russell