There’s been a lot of recent changes to the methods banks use to calculate max borrowing capacity
There’s little doubt that banks have tightened their lending criteria in recent times. It can be frustrating for those looking to get into the market and for investors who struggle to source finance for their next deal. Here are some ways that we’ve helped clients increase their borrowing capacity.
Remove/reduce credit card debts
A lot of borrowers don’t realise that the bank take their entire credit card limit into consideration when assessing their borrowing capacity (not just the amount owing on the card). Therefore, if you have a large limit which isn’t being utilised, then it’s best to reduce it to a lower limit. If you have credit cards that you don’t use or haven’t used in a while, consider getting rid of them.
Another way to increase borrowing capacity is to consolidate debt. For instance, rolling a car loan and/or credit card debt into a home loan will remove those monthly liabilities which are generally charged at a higher rate and paid out over shorter terms (and therefore have higher monthly repayments). However, it’s important to note that by consolidating this consumer debt into your home loan – you are likely to pay more for this debt in the long term if you simply just make the minimum repayments.
Restructure current loans
Restructuring your current loans can also bolster your borrowing capacity. Your current repayments set up – whether it is interest only or principal and interest can effect your borrowing capacity. Extending the loan term may also help – but there’s a lot to consider with this approach.
Find a more competitive product
At the time of writing, there are lenders who are providing large cash rebates to offset the costs of switching to them – furthermore, they are offering substantial interest rate discounts. Having a competitive product will reduce your monthly repayments which ultimately enhances your borrowing capacity.
Look at other products
Not all banks are the same when it comes to determining your borrowing capacity. Some use only 75% of rental income whilst others may use 100%, some load the interest rate on loans you have with other financial institutions whilst others don’t.
Have you reviewed your rents recently? Is there anything you can do cosmetically to the property that will boost the rent you can command? It goes without saying; a higher rent means more money in your pocket which means improved borrowing capacity.
Correct structure from the start – use a good broker that deals with investors
Brokers who understand property investing, lender policy and importantly your longer term goals will be strategic in their approach to sourcing you finance. This often involves spreading your loans across lenders and saving the more generous lenders until last, when you’re getting closer to hitting a serviceability wall.
If you’d like to have Jamie provide advice on your finance structure, investment strategy, first home purchase, upgrade or refinance simply complete and return this FORM and he will be in touch – this is a FREE, no obligation service.
The information herein is not intended as investment, financial, legal, taxation, building, development or any other advice and must not be relied upon as such. You should obtain independent professional advice and make further independent enquiries before making financial, legal, taxation, building, development or investment decisions.