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Today, ANZ have announced a further tightening of lending policy and will no longer approve loans above 90% of the house value.

This is a major contraction and points to more credit “squeezing”, making it harder for new home buyers.

Additionally they have determined to no longer capitalise the Mortgage Insurance Premium, meaning the total loan will be limited to preciseley 90%. For new home buyers planning to apply with ANZ this means they will need an extra 5% PLUS the Premium. On a house value of $400,000, this means about $25,000 extra will be needed.

My thinking is that prospective new buyers should consider getting in sooner rather than later with other lenders before similar contractions are announced by other banks.

Beware the publicity surrounding a new online service that allows you to have lenders bid on your loan needs.

It looks like all you have to do is provide your brief details and 16 lenders will beat a path to your door offering ‘unbelievable’ deals with discounts and low application fees and more. The article I read in the Sunday Mail told of how one surprised customer received an offer from Westpac which she had thought would never have made such an offer, implying that it was only because she used this online service.

Another customer is quoted as saying that first came the banks then mortgage brokers now it’s on line bidding. If you believe this get ready for a shock.

There is another quote from the happy borrower saying he was able to get the great deal without having to pay mortgage broker fees!

Here are the facts.

The site offers loans from 19 “lenders”:

• Bank SA
• Opportune Home Loans
• BMC
• Circle
• Citibank
• Collins
• CUA
• Easy Choice
• Homestar
• MKM
• Morgan Banks
• Pepper
• Sapphire
• State Custodians
• St George
• Suburban Management
• United Credit Union
• Westpac
• Yes Home Loans

Doesn’t look like much of a choice to me when you consider that most of the majors and some extremely competitive banks don’t make the list at all.

Oh, and most of the ‘lenders’ are Mortgage Managers or Brokers!

This all points to irresponsible journalism and lack of investigation on the part of the Money Editor for the Sunday Mail.

Or maybe it was a just an advertisement for the new site.

The interviewee sounds like an ill informed borrower eg he was  surprised when he learned he had to pay $5000 to leave his current lender. It sound slike he had bad advice in the first place.

Any accredited mortgage broker would have provided all the information he was seeking, plus access to possibly dozens more that could have saved even more money.

And no fees charged for the service!

There are plenty of online offers, but what an online service cannot tell you is whether the loan will suit your purpose, despite the rate charged. Nor will it calculate the value of a fixed rate and the fees involved over a scaled period. Only a broker can do this.

Even Choice makes the ludicrous suggestion that Credit Unions offer the best rates. The fact is rates change almost weekly and an assessment doen one day dose not necessarily apply the next.

Sure, check all the possibilities but don’t expect the advice you receive in newspapers is worth any more that just that. About $100.

Get a Broker to give you a more complete picture.

For those of you that have a Lo Doc loan currently, you should be aware that many lenders are beginning to place restrictions on lending under this Lo Doc policy. Not that that means that your current loan will change, but future lending under this policy may become more and more restrictive.

It’s my opinion that Lo Doc loans will revert back to a “rate for risk” basis – ie. significantly higher interest rates for this type of lending, as they were when they first entered the market some years ago.  A lack of losses by the big lenders and Mortgage Insurers (buoyed by a booming property sector and financial “good times”) encouraged competition in the market, and most of you will have been able to access Lo Doc loans at rates very close to, if not exactly the same as, standard loans – I believe that this will change significantly in the near future for new loans.

ANZ yesterday announced that at the end of this week they will be restricting lending on Lo Doc loans to 60% of the security value, down from 80%, and Suncorp has imposed lower loan limits and restricted the purpose of lending for Lo Doc loans, and restricted the lending institutions that it will refinance from.

CBA Colonial last week announced that they will no longer offer their Professional Package discounts to Lo Doc loans when lending is over 60% of the security value – And I think this is a trend that’s set to continue.

Other changes that have not been announced, but that I predict will be put in place over the coming 12 months, could be:

• ABN and GST registration (when you’re declaring over $75,000 gross income annually) must be in place for a minimum of 2 years (at present there are some lenders who have some policies outside these parameters, but I believe that this will become the norm.)

• Evidence of Equity in other assets – The Asset and Liability section of applications will be required to show significant interest in other assets, to support the income that the borrower(s) are claiming to earn.

• Restricted loan to value ratios (i.e. 60% down from 80% such as ANZ has put in place already.)

• Restrictions on post codes or areas where Lo Doc lending will be available.

• Increase in rates and fees for this type of loan.

• Removal of rate discounts and “package” offers

• Servicing calculators will get tougher (how much your income allows you to borrow will get tougher.)

There’s no doubt that losses in Australia on this type of lending has been almost insignificant when compared to the US Sub Prime market (Lo Docs in Australia aren’t really even considered “sub prime”), however lessons have been observed and while it will no doubt be extremely inconvenient for many borrowers, we have to consider that it is a prudent move to protect the Australian Property Market and Housing Sector from US style over supply and crash.

There is no doubt some borrowers who have worked the overly permissive Lo Doc policies of the last few years to their advantage, when under normal loan approval terms they may not have qualified for a loan.  Unfortunately for those of us who have had a genuine need for Lo Doc loans and have not “stretched” the truth will be the ones inconvenienced the most.

So, if you intend to do any lending on a Lo Doc basis in the near future, I would consider your needs carefully and perhaps “get in” before you find that the goal posts move.  Of course any lending should be considered carefully and you should be sure to borrow only within your means to repay, and ensure that the income you declare is an accurate reflection of your actual earnings, which you believe to be consistent, and expect to be ongoing.

Alternately, many of us, (and I include myself in this as I’m self employed too) may just have to get those Tax Returns up to date and accept that the banks look at the Taxable Income figure when determining your borrowing capacity (Yes, the figure that you pay your accountant so much money to get as low as legally possible!), or forego some of the deductions in order to keep your “Taxable Income” higher – The focus may move to prioritising whether it’s more important for you to pay less tax, but borrow less also, or pay slightly higher tax, in order to maximise your borrowing capacity.

So, in essence, I think Lo Docs will always exist in some capacity, however the terms will certainly cease to be as generous as they have been in the past.

Again, I would stress that this doesn’t mean that the terms of any of your current Lo Doc loans will change, but you should expect any future Lo Doc borrowing to be more restricted, and perhaps unsuitable or unattainable for your circumstances.

If you have any questions or concerns about your current or future lending, then please contact me to discuss your individual circumstances – I’m here to help ! 1300 133 193

How to borrow through a Self Managed Superannuation Fund.

Changes to superannuation legislation now allow superannuation funds, including Self Managed Superannuation Funds (SMSFs), to borrow to invest, providing certain conditions are met.

If you have a SMSF you may now be able to borrow money to buy a residential property for investment purposes through that fund.

[Note: I strongly recommend that you receive the appropriate investment, tax and legal advice prior to implementing this strategy.]

How does it work?

You want to buy a residential property through your SMSF but cannot fund the full purchase price. The SMSF does, however, have enough funds for a percentage of the purchase price. The SMSF can purchase the property under an instalment arrangement subject to certain criteria. The SMSF provides the funds for a partial payment of the property, pays all relevant fees and borrows the remaining funds to pay the balance.

The property is owned by a separate Security Trust, with the SMSF having a beneficial entitlement to it. The Security Trust may then lease the residential property to tenants on commercial terms. The Security Trust receives lease payments from the lessee, meets expenses related to the premises, and pays the net income to the SMSF. The SMSF uses that net income, together with other fund income or superannuation contributions if required, to make the loan repayments (“instalments”).

The property is security for the loan under a limited recourse loan. In the event of default, the lender has recourse to the property, and to assets owned directly by any guarantors, but cannot claim on any other assets held by the SMSF.

After the loan is repaid, the SMSF then has the right, but not the obligation, to acquire legal ownership of the property.
If this is of interest to you then please call me for more information on 1300 133 193.