One of the things we're constantly asked by investors, is "how can I get around the LVR rules"?The reality is that there is no silver bullet, but there are some ways in which you can be clever about how you approach your next rental purchase and really it depends where you sit in terms of equity, income and what you're prepared to pay to borrow money.
While it's common knowledge now that the maximum LVR that a bank can lend against a rental property is 70%, there are some other ways in which you can fund a new rental at a mainstream bank, or if you are converting your existing home into a rental property.
Exemptions include new builds, which with their low or no maintenance costs and ability to take advantage of more living on a smaller piece of land are becoming popular with investors.
Some can top up their existing portfolio using Registered Valuations to get a deposit to put towards a purchase with a Second Tier lender. These are not registered banks and most often have funding lines which are comfortable with them taking a slightly higher risk on a borrower.
Expect a Registered Valuation requirement, more fees, and a higher interest rate with a non bank lender. These lenders do not give out cash (so be prepared to meet the cost of legal fees), and they take the risk on the borrower rather than the security, so if there is anything remotely wrong with the property they won't be interested.Depending on the lender, this rate can be anywhere from 4.5% but can be much higher if you have low equity or bad credit.
Some investors struggle with income which fits into bank policy, especially as more and more are working on other ways to add income, like short term rentals and Air BnB. Most banks will need 12 months of this type of income, prepared by an accountant, and often scaled.
Second Tier lenders will sometimes take up to 6 months of this income and not require financial statements.
Banks will also scale rental income as the number of rentals increase, which has tripped up several investors who may no longer have personal or earned income. This means that as rental income increases, the amount of scaling also increases, and $2000/week of rental income could be viewed by a bank as $1500, effectively cutting out the income of a whole property! Again many second tier lenders may not scale income the same either.
These are just some of the ways we can help you to maximize your ability to purchase a rental property, or another, especially where the banks are tightening up.
Get in touch as we'd love to talk about how we can help improve the finance options for your rental investments.
Adam, Claire and the My Mortgage Team