Borrower

Do you need help?

  • Most of our mortgage brokers are ex-bank credit managers.
  • We specialise in getting tough loans approved.
  • You’ll need to know what LVR means to use this guide.
  • This page contains standard lending policy. We have access to specialised lenders that can consider making exceptions.

Please call us on 1300 889 743 or enquire online and our staff will help you to get approved for a home loan.

Acceptable borrowers

  • Natural person (over the age of 18)
  • Company
  • Trustee of a Trust
  • Any multiple or combination of the above borrowers.

Excluded borrowers include: Limited liability companies, associations, churches, clubs, minors (under the age of 18).

Restrictions apply to: Borrowers of convenience (borrowers that receive no benefit from the loan), non-residents (borrower residing outside Australia or who is living in Australia but is not an Australian Citizen or Permanent Resident).

Loans to companies & trusts

For company loans, all directors and shareholders (excluding ‘Notional Directors’) must provide unconditional joint and several personal guarantees.

In the case of a trust where the trustee is a company, directors and shareholders are required to provide unconditional joint and several guarantees, as mentioned above.

The trustee of the trust must always be the borrower in its own right and as trustee for the trust. E.g. Smith & Co Pty Ltd IIOR & ATF The Smith Family Trust. This requirement applies to both family, discretionary and unit trusts. Hybrid trusts are generally not accepted for home loan applications (Some exceptions may apply).

In some cases the directors of the trustee company may be the borrower, whilst the trust is the mortgagor. These applications are assessed on their merits.

Borrowers of convenience

A borrower of convenience is defined as a borrower that is added to the loan application to provide serviceability and/or security but does not receive a tangible benefit from the loan transaction.

Borrowers must have a beneficial interest in the loan transaction either by way of joint ownership of the security and/or dependence on the mortgagor in a marital or defacto relationship context.

It is not acceptable for a person to be joined in a loan simply to provide income support for servicing, or simply to provide added security for another party to purchase a property. The exception to this is with family pledge home loan applications.

Non-residents

For the purposes of this policy, a non-resident is deemed to be any person without permanent residency

status in Australia, and/or any person who resides and is employed in another country. New Zealand citizens living and working in New Zealand or permanent residents of New Zealand are considered residents of Australia and are not treated as non-residents.

Maximum LVR & Loan Amount

  • 81% – 95% LVR: Not available (Note that there are exceptions with some lenders).
  • 80% LVR: $500,000 (Note some lenders allow loans up to $2,000,000 at 80% LVR for non-residents).
  • 75% LVR: $750,000.

Borrowers must be high net worth, generally with net assets in excess of $500,000.

Where one borrower is a citizen or permanent resident of Australia or New Zealand and the other borrower is a non-resident as per the above definition, any proposal will be assessed under normal policy and not under the non-resident policy above.

In situations where non-rental income cannot be adequately verified, 100% of the gross market rental income for the security property must be sufficient to cover the proposed mortgage loan instalments, calculated at the current assessment interest rate.

Where required, written evidence that Foreign Investment Review Board approval has been granted, must be supplied.

Guarantors

Guarantors are required to complete a full application form including personal details, financial position, employment details and sign the Lenders Privacy Act declaration.

Where guarantor income is required to service the proposed debt, standard employment and income policies apply, including income and employment verification requirements.

For family pledge home loans the guarantor must not be a pensioner using their owner occupied property as security for the loan. Note that some lenders do not have this requirement.

Savings

Borrowers who have saved a deposit are generally better prepared to deal with any difficult financial circumstances that may arise. They have proven their ability to manage their finances responsibility & live within their means.

Genuine savings need to be evidenced in the following circumstances:

  • Home or investment loans up to 80% LVR: No genuine savings required.
  • Home loan over 80% LVR: 5% genuine savings required.
  • Investment loan over 80% LVR: 10% genuine savings required.
  • Low doc loan: 20% genuine savings required.
  • No genuine savings loan: No genuine savings are required at any LVR (Note that this product is only available from some lenders).

Genuine savings

Must be held in the borrowers name and include:

  • Funds held or accumulated in savings accounts for 3 months or more or,
  • Funds saved in First Home Saver Accounts, or
  • Equity in residential property or,
  • Term deposits held for 3 months or more or,
  • Shares held for no less than the last 3 months or,
  • Lenders may allow a gift / inheritance to be used where savings have been sacrificed by making accelerated loan repayments over the last 3 months. In these circumstances, the existing savings plus the value of excess repayments must be equal to or greater than the minimum savings required.

Non-Genuine Savings

These do not contribute towards the 5% genuine savings requirement:

  • Gifts or inheritance (see ‘Genuine savings’ above).
  • Proposed savings plans or Rental Purchase Plans of any kind.
  • Sale of assets (other than real estate) for example, motor vehicles.
  • First Home Owners Grant (FHOG).
  • Funds held in company / business accounts.
  • The proceeds of a personal loan.
  • Builder’s or vendor’s rebate / incentive.

Savings plans & rental purchase plans

Savings plans allow the borrower to save the deposit on a home, after approval of a mortgage. Similarly, rental purchase type arrangements enable the borrower to save the deposit whilst occupying the security.

These rental purchase arrangements are commonly referred to as, wraps, vendor finance or rent to buy schemes.

Neither of these plans are acceptable for mortgage insurance. Borrowers are therefore restricted to loans of 80% LVR or less. Borrowers may still get approval if they can provide evidence of genuine savings outside of the savings plan.

Employment & Income

Acceptable employment statuses are listed below.

Permanent salary/wage employment (full-time or part-time) and Contract employment:

  • Minimum 2 years continuous employment in the same industry, or
  • Minimum 12 months with current employer.
  • Where the borrower is undergoing a probation period, the loan application will be assessed on its merits, as well as the strength of the borrower’s overall position.

Casual income:

  • Minimum 12 months in current employment
  • Where the borrower’s only source of income is from casual employment, the loan application will be assessed on its merits, as well as the strength of the borrower’s overall position.
  • Some lenders will consider as little as a three month history in a casual position.

Self-Employed:

  • At least 2 financial years trading in the current business.
  • Note: where a borrower only has 12 months trading in their current business and 2 years in previous employment, within similar occupation/field, the application may be considered by the lender, based on the borrower’s self employment circumstances and the overall strength of the application.

Second Job:

  • Minimum 12 months in current employment.
  • There are some lenders that can consider an exception to this lending criteria.

Acceptables Income Types

  • Salary and wages: 100% accepted if length of employment criteria is met.
  • Overtime: 100% may be used to assist in serviceability if payment is regular and it can be confirmed in writing, that overtime hours are a condition of employment. If written confirmation is not available, evidence of overtime over the past 2 years will be required.
  • Overtime (Essential Services): Where borrowers’ employment is in the Essential Services industry (e.g. Ambulance, Police Service, Nursing, etc) written confirmation is not required.
  • Shift allowance: 100% may be used only if it is a condition of employment and is an industry standard.
  • Rental income: 80% of gross rental income to be added to gross salary/wage income (50% of gross rental income accepted for high density and/or inner city apartments. Please refer to our High Density Apartments page. Where a significant portion of a borrower’s income is derived from rental income, the application may be considered too rent reliant.
  • Negative gearing benefits:Tax deductible investment loan interest may be added back to net income (after tax)
  • Investment income (interest, dividends): 80% of income as demonstrated on tax returns – income level must be evidenced over the past 2 years.
  • Social security benefits / government pension: 100% accepted where the payments are considered as permanent for the next five years (unemployment benefit/sickness benefits are not acceptable).
  • Car allowance: 100% may be added to the gross taxable income.
  • Fully maintained company car: $5,000 p.a. may be added to gross taxable income.
  • Child support / child maintenance: 100% accepted if the maintenance agreement is registered with the Child Support Agency, six months consistent payments can be evidenced via the borrower’s bank account statements and the payments are considered as permanent for the next five years.
  • Self-Employed: Borrowers must produce the last 2 years business and personal tax returns. Income evidence must demonstrate consistent income levels for the years under review, however, it would not be unrealistic for each year to reflect an increase of up to 20% in the net profit. Where taxable income has increased over the last two years by less than or equal to 20%, then the latest year’s income is to be used. Where taxable income has increased over the last two years by more than 20%, then maximum of 120% of the previous year’s income must be used.
  • Depreciation: Up to a total amount, not exceeding 20% of business net profit, may be added back to after-tax income for servicing calculations.
  • Superannuation: Contributions in excess of the compulsory minimum percentage of gross annual income may be added back to the taxable income.

Unacceptable Income Types

The following income sources are not acceptable:

  • Workers compensation (with some exceptions).
  • Income from boarders.
  • All other forms of income not listed in the above “Acceptable income types” list.

Serviceability

Serviceability is the lenders assessment of the borrowers capacity to afford the loan. Each lender has their own method of assessing serviceability. However, there are two main methods used:

  • Net Disposable Income (NDI): This method is used to assess the borrower’s ability to meet regular fixed financial commitments. It calculates the funds left over (on a monthly or annual basis), after tax, living expenses & fixed commitments have been deducted from the borrowers gross income. This method is also known as the Uncommitted Monthly Income (UMI) method. The minimum surplus ranges from $1 / month to 25% of the borrowers total monthly fixed commitments.
  • Debt Service Ratio (DSR): This method calculates the percentage of a customers gross income that is used to service a debt. As a general rule, home loans with a DSR greater than 50% are declined.

Using a Servicing Calculator, proposed debt repayments (except those with a fixed interest rate for 3 years or more) are calculated at the average standard variable rate of the four major banks or the Lender’s standard variable rate (whichever is the higher), plus an interest rate buffer of an additional 1.5% to cover interest rate movements and / or unexpected expenses.

If the fixed rate term is 3 years or greater, the actual interest rate can be used to demonstrate servicing (i.e. the additional 1.5% buffer is not required).

Join income & commitments

Where the borrowers have existing joint commitments with parties who are not included in the loan application, 100% of the existing commitment is to be used in calculating serviceability for the new loan.

If the borrowers share a positive income source, such as rental income, with parties not included in the subject transaction, the borrower’s tax return or certificate of title is used to ascertain the percentage of ownership.

This percentage will then be applied to the gross joint income, in order to determine the amount used in calculating serviceability for the new loan.

Note: this means if you have a jointly owned property with someone who is not applying for your current loan, the bank will use 100% of the repayments on your investment loan, but only 50% of your rent income.

Some banks can consider an exception to this lending criteria where you can prove that the other person that is liable for the debt is making a share of the repayments.

Allowable add-backs

For Self-Employed borrowers or companies, there may be some expenses that can be added back to your net income, for the purposes of assessing debt serviceability.

For example:

  • Income/salaries of directors (where not already included in income calculations).
  • Interest paid on debt being refinanced.
  • Business depreciation (not exceeding 20% of business taxable income).
  • Superannuation contributions in excess of the compulsory minimum percentage of gross annual income.
  • Non-recurring expenses (confirmation from borrowers accountant required).

Living rent free with parents

Where the borrower is purchasing an investment property and is currently residing with family or friends, either rent-free or at an unusually low cost, a notional rental expense of $150.00 per week ($650 per month) may be included as an existing financial commitment when determining serviceability. However, this is ultimately at the lenders discretion.

This is to manage the potential risk that the borrower may move out of their current residence or move into their investment property later on.

This notional rent expense will not apply to loans for the acquisition of vacant land.