Posted by: Yuveer | 2014/10/08 16:19
Hi, I bought my first property last year - a one bedroom loft apartment in a prime location.
I would like to purchase a second property as an investment, however I know that within the next five years I plan to buy a free-standing home for the long term, and rent out my current flat.
At this point in time I hope to have 3 properties in my portfolio - one which I would live in, and two on rent.
I am afraid that when I apply for a third loan - for my long term home - I will be told that my income is tied up in two existing bonds, and might only get a fraction of the loan amount required.
Will this be the case?
Posted by: John Loos | 2014/10/15 14:11
This is a really good question... Banks will
typically not take your full rental income into account to allow for times that
your property might be vacant or where a tenant might not pay you. This is
obviously done to protect both parties as it is in neither the banks' or your
own best interest that you default on your loan commitments. Typically when
clients default on a property and the bank is left with no other recourse than
to sell the property on Sale in Execution we only realise about 60-70% of the
value of the property. As you can see this leaves the client with a shortfall
that they will still be responsible to service despite not owning the property
anymore. So our interests are actually quite aligned in terms of this and we
try to do what is best for both parties to the transaction. As a further
protective measure we also typically allow for the prospect of interest rate
increases when we do your affordability assessment, also just to protect you
that should rates go up, you will still be able to make good on all your
So in conclusion, the risk you point out is
a valid one. To mitigate this risk you have to do your own affordability
calculations in such a way that you have more than enough room to maneuver
should some of these risks play out. Although, not knowing your full financial
circumstances I cannot guarantee that you will be approved, you at least are in
a better position to understand how we look at these aspects from a banks'
thanks and regards,
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