#115: How much can I borrow? How borrowing capacity can be impacted, massaged and manipulated (without breaking the rules of course!)

The Property Trio

https://propertyplanning.com.au/propertyplannerbuyerprofessor/ In this week's episode, Dave, Cate and Pete take you through: Weekly market updates 1. Sales outweigh listings Data from Domain shows that for every new listing, there are 1.4 sales. In simple terms, more properties are being sold than put on the market for sale. This spells a challenging buyer-seller imbalance and one that we can anticipate will be exacerbated by the impacts of lockdowns across our nation. 2. Correlating covid cases with housing sales Interesting data tracking the number of daily covid cases and the number of housing sales in the Northern beaches of Sydney shows that the higher case numbers, the higher the sales volume. Ability to trade during the pandemic is one key factor, but what is causing this buyer demand? The trio question whether it is happening across broader Sydney and whether it is a correlation or merely a coincidence. 3. Sharp decline in 'Time to buy a dwelling' index The Westpac-Melbourne Institute's "Time to buy a dwelling index" has posted a sharp decline of 8 points from July, down to 88.9 in August. This is the second lowest reading in the last 10 years. The index is a good forward leading indicator of what is likely to happen in the market and suggests owner occupiers are feeling the heat and the market is getting too heady for first time buyers and upgraders. Remember! When the rest of the pack are fearful can be a very good time to buy. How much can I borrow? 1. The age-old question - how much can I borrow? Often the first question our strategic mortgage brokers get from eager clients is 'how much can I borrow?". Rarely straight forward, it's a vexed question with various nuances to be worked through. Each lender has their own set of rates and policies, and mind you, there are about 60 lenders out there, all with varying products on offer! Which lender will treat your scenario the most favourably can be broken down into four key factors: 1. assessment rates. 2. variable incomes. 3. interest only vs principal and interest 4. how lenders mortgage insurance impacts purchase price. In this episode, the trio tackle the ins and outs of assessment rates. 2. What are assessment rates? The assessment rate is the rate that lenders use to assess your borrowing capacity and this rate is always higher than the rate you are actually going to pay on your mortgage. The purpose of the assessment rate is to stress test your ability to make repayments to account for future uncertainties such as: future rate rises, reductions in income, unemployment, change of employment, illness, divorce, expected events (having children) or other unexpected events that may happen during the loan term (which is often 30 years). 3. The floor assessment rate Floor assessment rates are mandated by APRA for the banks and also one of the tools that APRA used when trying to slow down interest only and investment loans. The floor assessment rate is the lowest rate that a bank will use to assess borrowing power. As an example, Westpac's floor assessment rate is 5.05%. When assessing borrowing power, most lenders will use the higher of your actual rate + 2.5% OR the floor assessment rate. 4. Why using online calculators is fraught with danger There are many different considerations which go into answering the question 'How much can I borrow?' Loan to value ratios, lenders mortgage insurance...