NRAS Calculator – What’s The Return On Investment

Tony, FYI

I have posted extensively on NRAS finance previously,  but I'll post here again, as these questions seem to keep coming up.  Depending on which Approved Participant the NRAS incentive is being administered by, these are your finance options…

QAHC  – Head Lease Agreement
Westpac, St G and Rams.  70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing.  They have the best borrowing capacity by far, for NRAS.

Questus – Non Entity Joint Venture via Managed Investment Scheme.
Westpac, St G and Rams.  70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing.  They have the best borrowing capacity by far, for NRAS.

Aspire – Non Entity Joint Venture
Westpac, St G and Rams.  70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing.  They have the best borrowing capacity by far, for NRAS

Yarran Group  –  Non Entity Joint Venture. 
Westpac, St G and Rams.  70% LVR without LMI, 85% with LMI. They use 65% of Gross Rental Income for servicing. They do NOT use the NRAS incentive for servicing.

UAHA – Non Entity Joint Venture
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing.  They have the best borrowing capacity by far, for NRAS.

Ethan  Affordable Housing – Non Entity Joint Venture
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing.  They have the best borrowing capacity by far, for NRAS.
Bendigo Adelaide – 80% LVR  without LMI. They use 65% Gross Rental for servicing and they do NOT use  the NRAS incentive for servicing. 

Affordable Management Corporation
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing.  They have the best borrowing capacity by far, for NRAS.

Accelerated Wealth Systems ( Quantum )
Firstmac. 80% LVR without LMI. They use 65% Gross Rental for servicing and they DO use 100% of the NRAS incentive as tax free income for servicing.  They have the best borrowing capacity by far, for NRAS.

Of course, you can ignore this, and get around the LVR restrictions by simply not declaring the property is NRAS, when appyling for a loan. Its easy enough to do, as NRAS isnt mentioned anywhere on the contract of sale you would present to the lender. This would achieve two things. Firstly, it would allow you to access any lender in the market, as you would be presenting a generic investment loan application. Secondly, it would allow you to access 90% LVR, as most lenders policies allow for this with conventional investment loans.  So I can see how it might be tempting for investors who dont have enough equity to buy NRAS at 80% LVR for example. I can also see how it would be tempting for brokers to use this "loophole", so they can write the loan and make a commission

However, if you fail to disclose the fact it is an NRAS property, you would technically be presenting false information on the application form, and the bank would be calculating your borrowing capacity based on full market rental rather than discounted NRAS rental. It amounts to fraud, and it's a very very dangerous path to tread. If a lender discovers the property is NRAS after the loan has settled, they may call in your loan on the basis of failure to disclose.  I suggest you double check and triple check that any broker you use, is disclosing NRAS to the lender, and is sticking  to the lenders above, so you don't have any problems down the road…

Just my 2 cents…

In a nutshell Tony – I'd be using Westpac, St George, Rams or Firstmac for NRAS for the relevant NRAS Approved Participants models, as outlined above.  At best, other lenders will only do NRAS on a case by case basis… and its terribly inconsistent. 

I dont understand why people try to "cheat".  The 4 lenders above have gone to the trouble of specifically developing NRAS lending policies, for the NRAS Approved Participants listed.  I think any broker or investor  trying to do NRAS finance outside these lenders, in order to avoid the LVR restrictions or borrowing capacity restrictions,  is taking a silly risk…. Besides, its fraud.  Anyway, thats for individual investors and brokers to decide for themselves I guess…. but I know there's lots of it going on already and it strikes me as being unnecessarily dangerous when there are 4 lenders with great NRAS products offering a legitimate way to do things…

I have to further stress that whilst St George, Westpac and Rams will go to 85% LVR and Firstmac will go top 80% LVR,  Firstmac is the only lender that uses the NRAS incentive as income for servicing. They treat  the entire NRAS incentive as tax free income, so you actually have better borrowing capacity with them than you would have by failing to disclose NRAS and presenting the deal as a standard investment deal, where lenders calculate 80% of gross rental, generally.   

So, with St George, Westpac and Rams, rather than inputting 100% Gross Rental into their calculators, you input  80% of Gross Market Rental into their calculators, to allow for the NRAS discount. ( This applies to QAHC too, even though the QAHC NRAS discount is 25%, unlike every other Approved model, which all use a 20% discount – the lenders have gone with a one size fits all policy for servicing to keep it simple)  Just like conventional investment deals, the lenders calculator then assesses this figure at 80%, so you end up with approx 65% of Gross Rental being used  (80% x 80% = 64%) 

With Firstmac, you do exactly the same  –  input 80% Gross rental into their calculator, which in turn calculates the data at 80% (80% x 80% = 64%) PLUS you input the $9140 NRAS incentive as tax free income.    All the lenders calculators also apply their normal Neg gearing/Addback values… Bottom Line ? – You should get significantly better capacity from Firstmac, for NRAS. Might come in handy especially for investors wishing to purchase multiple NRAS properties in the coming year or two…

FYI…not sure whether you are aware, but Firstmac also offer unconditional approvals for 18 months, on Off The Plan NRAS purchases. The only criteria is that you must refinance another non – NRAS property to them up front, in order to qualify for this policy. It doesn't have to be PPOR, it can be another INV property if preferred…but lets face it, usually the equity for an INV purchase will come from the PPOR, so I would expect that in 99% of cases that's what people would be refinancing to Firstmac. The refinanced property is meant to provide the 20% deposit plus costs to complete the Off The Plan purchase.  They set it us as an Interest Only split on the refinanced loan, and retain the funds until settlement of the Off Plan property.   Pretty powerful policy. If I was buying Off The Plan, Id certainly be taking this option.,…