Hi everyone, need an opinion on this as we're rather new to this.
One partner of our potential wrappees has a part 9 debt agreement that she will be paying off over the next 2 years (she says its for a debt of less than $5 000). Other than that their credit history is a couple of unpaid Telstra bills, one of which has been referred to Alliance factoring 314. Both bills are under $200. They have a good deposit and their combined salary is within the limits. They are both keen to own a home.
My question is:
1) Are they too risky to take on? esp with the Part 9 and potentially being declared bankrupt if the credit company decides to cancel the agreement?
2) Would they be able to refinance in 3 years time?
Thanks in advance. We will have to make a decision in the next day so that we can continue to advertise if we decide not to go with them.
Vanessa
Hi Vanessa,
My response might be too late but in any event I'll give you my thoughts on this issue.
The first question can be broken down into two parts:
(A) The major issue is serviceability. When you add up all their commitments which include the instalments to you, the part 9 agreement, car loans, visa bill etc. the amount should not be anymore than around 35% of their combined gross income. If that is the case, then you know they have the ability to service the loan. Personally, I have gone for less than 35% so that there is a buffer against interest rate increases. I do not think the credit company will cancel their agreement as long as they are paying the debt back in accordance with their agreement.
(
The other part of your due diligence I would be interested in is whether or not they declared the part 9 debt agreement to you, or did you only find that out when you obtained a copy of their credit history. That will tell you whether or not they are straight with you and therefore whether you can rely on them to be frank with all issues that arise throughout the term of the contract.The second question:
I have had people with bad credit and on pensions when they bought from me and 18 months later refinance with a normal bank. The increased equity in the property and their good repayment history gave them the upper hand in their discussions with one of the Big 4. I do not stop them from doing a refinance, although I could and can, as it promotes a win-win outcome to both parties.
Kind regards
MarkThanks for your reply Mark. I'm glad that you have had a positive experience and it seems we might have a good one here too.
I talked to my solicitor who suggested that I put the partner with the part 9 as a guarantor to circumvent any problems refinancing down the track. I use the 35% rule as well and they are definately well below including paying off the Part 9. They will be able to pay still if the interest rates go up to 9%.
They declared it straight up when I met them and they were very worried about it as it has caused them to be rejected in the past.
They have now on our advice, started up a special account where they are putting aside $30 a week and any bonuses so that not only are they are comfortable with paying their payments to us and at the same time are ready for any rate rise to 10%. they cannot withdraw from that account without going through a lot of paperwork. so that will set them up.
We will probably be signing off sometime this week as they are seeing their solicitor this week and we hope it will be a win win for everyone.
Vanessa
The other part of your due diligence I would be interested in is whether or not they declared the part 9 debt agreement to you, or did you only find that out when you obtained a copy of their credit history. That will tell you whether or not they are straight with you and therefore whether you can rely on them to be frank with all issues that arise throughout the term of the contract.You must be logged in to reply to this topic. If you don't have an account, you can register here.
