"Rent Reliant"

I haven’t read the link, but…

I just did a loan for a person who earns 10 times more from rents than her salary. One lender wanted to do the deal as a commercial loan because of the number of properties she owned, but other lenders didn’t have a problem with it.

This can certainly play into lender policy, but I’ve yet to ever have a deal we couldn’t put through due to rent reliance – it’s just a part of correctly structuring lending, factoring in lender policy.

This is including clients with large multiples greater rental income than wage/business income.

I totally agree with the understanding of lender rate not being the chief concern.

In my early days (this is how to date yourself guys .. you use phrases like .. IN MY DAY) I would be ok with taking on any lender at any rate as long as it was cheap and the broker was ‘honest’ (go on .. laugh now). Having had one particular loan company that was based largely online to save money and no real infrastructure .. it was VERY difficult to meet payments by the due date allowing for the fact that the payment systems they used took 4 days to process (this was NEVER mentioned in any conversation I had with the institution). So basically I was always getting a late fee even though I would be submitting payment a day or two in advance.

It was an excellent recipe for ending up with mortgage troubles and paying a heap more than you need to.

The other thing I found out over time .. that the LIABILITY you are exposed to by non-banking institutions is a hell of a lot greater than banks. If the situation is that the loan provider falls into receivership or sells off its folio to another lender .. the conditions on your loan may change faster than you really wish them too, or even worse .. you may be required to refund the loan AT THE FULL AMOUNT to the receiver or folio purchaser .. depending on the conditions of the transfer or redemption.

So my usual schedule over the years has been to get a loan with a reasonably secure non-bank lender .. wait a year or two then approach a bank and see if I can draft the loan across to them. By then I usually have either increased equity or better rents so the answer is usually YES straight up.

After the PYRAMID collapse (and Tricontinental and State Bank) the rules were rewritten slightly on the requirements for stability in the banking industry. This means that a bank in Australia usually has a bank guarantee (for whatever thats worth) on your loan and the arrangement. Thats the one key component that’s missing in non-bank lender transactions .. and the value of that really cannot be underestimated.

I can only expect the situation with non-bank lenders to get more strict over the next couple of years. There is a growing feeling in the lending industry that residuals (read RENT RELIANCE) which used to be capped at 60% are too much of a reliance for borrowing and not enough of a consideration vs income. However as someone who at one stage was TOTALLY reliant on my residual incomes (cos i got enough) and didnt actually NEED a job .. it really is a pain in the gluteus maximus for attracting lenders.

The issue has been that when things get tight for most people and the banks WONT lend .. well .. thats really the time you want to borrow .. because of the inherant value in being able to. So as I have stated many a time on here .. the appropriate mix when approaching a bank .. is to have a source of income .. and the possiblity of a residual as a balance .. rather than a pivot.

The other thing I have stated .. is to reduce your loans no matter what the market .. by a graduation of about 2.5-3%. In the short term it looks as if you are paying the loans down (which they like to see) and it also places you as a good credit concern.

And in a tougher market .. there is a great price to be placed on being a good credit concern.