AS SEEN IN THE DINGLEY DOSSIER
“How much can I borrow?” is a standard start point for many prospective residential property purchasers. The start point should be what repayments can you afford to make? Banks do not willingly issue loans to clients who cannot afford to repay them, they are also under regulatory pressure to lend responsibly, but you should always check your own numbers as well!
The bank term ‘loan serviceability’ refers to their test which partly determines your borrowing capacity. It is important to note that every bank has different rules and parameters, in fact the same person asking at 20 different banks and financial institutions can receive 20 different answers to how much a bank will lend to them (one advantage of using a broker!).
Every different component of the analysis can vary bank to bank. For example how long you have worked at your current position matters, even how you earn your income: Base wages, overtime, penalty rates, commission, independent contractor, self-employed, rents, dividends, child maintenance.
‘Assessment’ rates vary, and will not be the same as the actual interest rate payable. Banks will add a margin when assessing serviceability, to make allowances for future interest rate rises, they will also assess at principle and interest repayments.
Negative gearing allowances also vary bank to bank, having significant impact where investment loans are evident. In the current climate where we see many first home buyers purchasing their first property for investment purposes whilst still living home (on the bank of Mum & Dad) this is critical, as is treatment of imputed rent payments.
Credit card limits are important, banks will allocate repayments based on your card limits whether you have them maxed out or not.
Personal loan and car loan repayments will severely limit your borrowing capacity. If you are wanting to buy property consider the effect that holiday or car may have on your serviceability before you make the purchase!
Even more important is your credit record. Pay your bills on time (including that mobile). If you are unsure of your credit record discuss that with your broker.