#116: How to increase your borrowing power - Learn how investors, first home buyers and upgraders increase capacity

The Property Trio

https://propertyplanning.com.au/propertyplannerbuyerprofessor/ In this week's Ep#116, Dave, Cate and Pete take you through: Weekly market updates 1. The price of iron ore has dropped by 30% since the end of July and property growth in Perth wanes Looking at the daily CoreLogic index, Perth is the only city exhibiting negative growth this month. Although we don't place as much trust in the daily index, Perth has shown, (over 2021) to have the least growth of all capital cities, at 11%. The declining price of iron ore hasn't helped Perth as far as the economy and property market is concerned. It looks as if the Perth property market is flattening out. 2. Latest unemployment data for July ABS unemployment data has shown the unemployment rate drop to 4.6% from 4.9% in June, which is the lowest rate since 2008, (post the GFC). However, in the wake of lockdowns, the participation rate has fallen by 1.3 points over the year, which indicates that people leaving the job search yet not being picked up in unemployment statistics. This could be due to retirees hitting the go button or casual workers holding off on finding employment to take the opportunity to upskill. The effective unemployment rate could be actually 6%. 3. The lay of the land post lockdown As vendors put their plans to sell on hold, post-lockdown campaigns are going to bank up. It's likely that auction campaigns could be reduced to run for only two weeks, to accommodate for the back log and desire to sell prior to Christmas. This could be a good opportunity for purchasers to take advantage of. It is critical to be prepared and ready, have your finance approved so you can pivot quickly leading into the spring market. How much can I borrow? 1. Assessment of variable and rental income Eight out of ten people have some form of variable income, whether that's overtime, commissions, bonuses, sub-contracting or self-employed income. This is a key component for lender policy, as lenders have different methods of assessing and more importantly, shading, (moderating) variable income. However, there are second tier lenders who will consider 100% of your variable income, having significant impact on your purchase price, strategy and portfolio planning. Real estate agents are a perfect example, where they are typically on a modest salary and the majority of income earnt is in commission payments. 2. Rental incomes Much like variable incomes, lenders will usually shade rental income to 70-80% when assessing your borrowing power. This is to make allowances for rental vacancies and property maintenance. Similarly, to variable there are second tier lenders who will not shade rental income. 3. Vanilla or rainbow deals PAYG applicants, with no variations in income are referred to as 'vanilla deals' - plain, delicious and easy to get approved. However, if you have variable income, rental income, credit issues or you're an expat living overseas, (or any other challenging aspects to your application), it pays to have a strategic mortgage broker in your corner, who is an expert in the market and can find you the most favourable lender and product offering to maximise your borrowing power. 4. Interest only vs principle and interest When APRA implemented caps to interest only and investment lending, the way interest only loans were assessed also changed. If you elect to have an interest only period, the lender will assess your capacity to repay the loan based on the remaining P&I term. This means that if you have chosen 5 years interest only, you will be assessed based on your ability to repay the loan over a 25 year period, rathe...