Property investor low doc

My lender is putting on the brakes!

Has your bank pulled the plug on your investment plans? It is quite common for banks to be supportive and help you invest when you buy your first couple of properties. But once you have 3, 4 or 10 under your belt they start to worry about their exposure.

Low Doc Loans were never intended for investors

Banks created their low doc loans to service self employed borrowers that hadn’t completed their tax returns or who had complex situations such as trust structures so could not obtain full doc loans. Professional investors took up low doc loans in droves during the 2000 to 2003 property boom. As the market died down, banks started imposing ABN requirements which stopped professional investors from getting low doc finance.

What is wrong with borrowing too much from the one bank?

Exposure, exposure, exposure. When a small investor becomes big this word starts to become very familiar. You see, if a bank has lent a large amount of money to one person then if that person runs into financial difficulties the bank has a lot more to lose. Investors tend to take greater risks than mum and dads buying a home to live in, so tend to represent a higher risk to the bank.

If you are getting low doc loans then your loans are usually being mortgage insured by your bank. Mortgage Insurers such as Genworth and PMI tend to cap their total exposure to one borrower at $2,500,000 each. The banks can have exposure problems anywhere from $1,000,000 to $2,500,000 themselves.

We tend to spread out the risk between several lenders and LMI providers to maximise the amount you can borrow, allowing you to break free of the limits imposed by your bank.

But my rent covers my repayments!

Is your portfolio positively geared? Maybe it is, but not in the eyes of the banks.

Why is this so? Well when banks assess your serviceability they usually use principal and interest repayments at a rate 0.5% to 2% higher than the actual rate. Also they will only take around 80% of the rental income. This can easily turn a positively geared portfolio into a negatively geared portfolio in the eyes of the credit manager. For this reason many investors turn to special investor low doc loans.

I don’t have an ABN because I’m an Investor

Normal low doc loans usually require that you have an ABN that was registered over 2 years ago. As an investor you have a legitimate income, but no ABN! Most no abn low doc loans are not available for people that earn their money investing, they are only available for people with businesses. Don’t worry there is a solution…

The property investor low doc solution

Luckily some lenders have seen this problem so will allow investors to apply for low doc loans without an ABN. The investor will declare the income they earn from property investing or in same cases share trading, and the bank will not require any financials.

Be careful because income from buying and selling properties is generally not accepted. Only rent income and dividend income is widely accepted by the banks.

What are the rules?

Property investor low doc loans aren’t just handed out on a silver platter to anyone who wants them! You’ve got to have a clean credit history, perfect repayments on your current loans and they will never let you borrow over 80% of the property value. For larger portfolios of greater than $10,000,000 they may ask you to reduce your loans to less than 60% of the property value. The most important rule is to do with the locations that you invest in…

Location restrictions

Many property investors with more than ten properties favour investing in mining towns or rural locations that have a high rental demand, making the properties positively geared. Unfortunately towns of less than 5,000 people have historically had populations that fluctuate wildly which in turn results in house price fluctuations.

Many banks or their mortgage insurers put restrictions on low doc loans in remote locations because of this higher risk. The majority of lenders categorise postcodes into different risk categories and decline your loan outright if you are investing in an area that they don’t work with.

Don’t worry, not every bank has location restrictions. Although getting around location restrictions with a full doc loan is easier, it is still possible to buy in almost every area of Australia using a low doc loan.

Be careful and assess your own risk

When you are building a portfolio of properties using an investor low doc you need to be careful to make sure that you don’t overstretch yourself. We’ve seen many an investor rely on increased property prices to release equity and fund their repayments and we know this ultimately this is not a sustainable way to invest.

As your portfolio grows you should reduce your loan to value ratio (LVR) so that your portfolio remains positively geared. You may also want to fix some of your loans so that you can be sure that the reserve bank will not wipe you out. Seek your own independent financial advice before making any decisions, this webpage is only to be used as a guide.

How can I apply for an investor low doc loan?

Enquire online or call us and we’ll find the loan that is right for you! We have several lenders that can assist professional investors build their portfolio.