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Loan to value ratio LVR restrictions for investment property return to 70% - YouTube
Channel: Prosperity Finance_NZ Mortgage Broker
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- Hey, it's Connie from
Prosperity Finance.
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I hope you're well.
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Now you probably heard that ASB and ANZ
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has made an announcement
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that they will reduce their LVR on
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investment property
lending from 80% to 70%.
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Now with ASB situation, it
takes effect immediately.
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So they already applied the new rule.
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Now with ANZ. still got a time.
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'Cause they set the deadline
to be the 7th December.
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Now when this news came out
we got flood of inquiries
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because people was really surprised
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that the LVR rule changed so dramatically.
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So do us.
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If you remember back then the 1st May,
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Reserve Bank has provided
LVR exemption policy.
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So that means that you
don't really have to
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have restriction on LVR
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Banks you can lend whatever
you like, in terms of LVR.
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Now a lot of people
confuse that you don't need
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a deposit anymore.
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That was not the case.
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It just means that there's
no restriction for the bank
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to comply.
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But bank do have their own lending rules.
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They will never lend on a 100%.
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So yeah, that wasn't the case.
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But bank, what they did was
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they actually loosed the rule
on investment property LVR.
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So it used to be 30%
deposit, now it was only 20%.
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Most of the bank has done
that except a couple of banks
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like Westpac, SBS, Co-operate Bank.
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Most of the major banks
like ANZ, ASB, BNZ,
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Bank of China, even they all
start applying 80% LVR rule,
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i.e you only need a 20% deposit.
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Now we know that the property
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is growing in value
dramatically post lockdown.
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LVR rule exemption, we
think, might be returned
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sometime before May when doing the review.
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But what we didn't expect is
this rule come back so quickly
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even before end of this year.
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So there was no any indication whatsoever
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and you have to apply
the new rule immediately
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or in four weeks time.
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So anyway, it's happens.
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We're all surprised or shocked,
but what can we do about it?
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Yes. You still got the time.
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Why? There's still other banks.
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They are lending on 80% LVR.
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What are they?
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Firstly, ANZ still lending
80% before 7th December.
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And BNZ, even though BNZ have a different
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servicing requirement for 80%,
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but they can still lend on 80% LVR.
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With BNZ
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So what that mean is, if you borrow 70%,
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they can lend you more,
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than if you borrow 80%
for your investment.
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Even your income is the same,
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but they have other
servicing restriction apply
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when you borrow 80%.
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But it's still open for 80%.
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Bank of China, for now they
are still lending on 80%
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even though they don't do pre-approval
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due to their capacity limitation.
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Now what the live deal mean is
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you need to have a signed
sell-purchase agreement.
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So normally these purchase
through by negotiation.
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If you want purchase through auction,
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unfortunately they can't do it
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'cause you need a pre-approval right.
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It's unconditional once you win.
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Also is very important sector
is called primary non-bank.
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So they are not banks,
but they're also competing
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with banks in the home loan space.
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Normally they have a slightly
different rules from banks.
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One of the rule is
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they've been lending
on 80% for a long time
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even for investment property.
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Even before the 1st May.
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And now they are still
applying the same rule.
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Now their interest rate
is only marginal higher
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than the bank's rates.
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For example, just put into a context,
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the banks might charge
you 2.39%, for example.
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Now the non-bank probably
charge you a 3% or maximum 4%.
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So it's really affordable.
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Yes, it's higher than the banks,
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but if you don't go to them,
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you may not have a solution.
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You probably miss out on opportunity,
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which could bring you much
more wealth in the future.
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So they have the option there for you.
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Now you may wondering,
"I don't really know
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the impact of the LVR 10% difference."
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Now let me give you example.
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Now assume this customer has one home
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and one rental property.
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The home was $1 million and
the LVR is 80% at the moment.
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It's been like that for a long time.
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Now, the security value, what that mean is
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the banks happy to lend
with that property value
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up to a 100K.
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Now let's assume the home
only had 400K borrowing.
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So I use the portion.
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So the value of this minus the balance
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is called "Unused Equity."
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So unused equity is 400K.
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Now they also have a
rental property worth 900K.
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Now under the scenario of 80%,
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banks are happy to secure
the loan up to 720K.
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Now let's say the property
already borrowed 600K.
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The unsecured part is 120K.
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That's simply this number
minus 600 equals 120.
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Now when the LVR is 80%,
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the total unsecured equity
in this case is 520k.
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Let's say the deposit to buy
another rental is only 20%
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because the LVR is 80.
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So what that mean is
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let's assume the customer
has enough income
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to service the additional 2.6 mil.
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Then they can buy a property up to 2.6 mil
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or buy two
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So it's simply
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use the unused equity divide
by the deposit requirements,
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that gives you the budget.
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You don't need to
provide any cash deposit,
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You can just use the equity.
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Now let's look at the scenario of LVR 70%.
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Now, under 70%
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the security value would be 630K.
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Because they no longer
comfortable to lend you
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more than that
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'cause the LVR dropped.
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Now, the balance is still 600K.
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So the unused use portion
is reduced to 30K,
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not 120k anymore.
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Now, in this case the unused-equity
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across the two is only 430K.
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And you need 30%.
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You have less equity, but
you need more deposit.
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So what is the budget?
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Again, assume that
customer has enough income
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to service the loan.
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Cause we only talk about the LVR,
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which is the equity side of thing.
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So that equals to 1.43 mil.
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So they can only purchase
a property up to 1.43 mil.
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Now the different between
the two is about 1167k.
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When the LVR is 80%, they probably
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can buy two rental property
but now there's only one.
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They will miss out one property.
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That's how significant it is.
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With some customer,
lots of rental property,
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this figure is even more significant.
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So it definitely very important
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if you are looking to purchase a property
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in the near future.
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The equity is so
important 'cause you can't
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simply save 30% deposit in cash, it's...
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You know, no one can, it's very hard.
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So equity is so important
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for you to build your property portfolio.
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Now what action we can take right now?
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ANZ and ASB are already,
tighten up the LVR rule.
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You still can do something
because as I mentioned
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there's some other banks
are still lending at 80%.
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So I have a video I
recorded around 1st July,
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so you can have a look that video,
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'cause in that video I talked about
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how you can seize the
opportunity of 80% LVR.
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What action you can take.
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So here, I just briefly kind
of cover these point again.
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Now, if your properties are cross-secured
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that means you have more than
one property with one bank.
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Now I would recommend splitting them now.
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Now, take the rental property
and borrow up to 80%.
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That way you can reserve the equity.
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And then let the remaining
loan secured by home
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And keep them separate.
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If you don't keep them separate,
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when the LVR do drop to 70%,
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the weighted LVR will be reduced.
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And also some people, they have
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significant increase in
equity as a result of 80% LVR.
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Now potentially you can look at.
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if you can discharge
any existing security.
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For example, in this case,
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let's say clients can
borrow up to 1.5 mil, 1.52
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and they only have a mil of debt.
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So that means they have enough
security to secure the loan.
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If they have a third property
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and also mortgage to the same bank,
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then it's not necessary
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because the bank has enough security.
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So you can "discharge" their property.
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Why discharge?
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Well it's for better asset protection
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because bank has no
control over the assets.
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And also later you can use
the mortgage free property
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as equity to borrow from any bank.
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As long as the servicing stack up.
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You don't have to go
to your existing bank.
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They may not be able to
lend you the maximum.
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So do these things.
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If you already split the banks,
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you have different property
with different bank
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then I would recommend a review
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if your rental property is
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secured with a bank who can lend you 80%.
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Now if not, think about
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refinancing to another
bank who can lend you 80%.
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However, you might have some
costs associated with that.
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Such as breaking costs if you
are still on fixed-term loan,
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and if you get cash back
from the current bank
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and you still within that cash back
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clause periods like three or four years,
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you may have to pay
back the full cash back
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or partial of the cash
back you received earlier.
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So just bear in mind,
that will be the cost,
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but the benefit probably
outweigh that cost.
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So you need to make a judgment on that.
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Now, also see if you can
top-up the rental property
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to 80% and use the top up
money to repay the loan
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which secured by home.
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Because your equity with a home,
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it doesn't really change much.
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The 80% has been applied for many years.
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The rental property LVR however,
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this is a probably a last chance
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for you to reserve the LVR 80%.
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So do this if you already
separate your properties
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with different banks.
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Now, a couple of other tips, action now
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because one is, it's just
Christmas around corner.
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Normally this is a peak
season for us, for the banks.
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So everyone gets really busy.
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So turn around time is very slow.
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And also because some
banks like ANZ, there was,
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they set the new rules start
applying from 7th December.
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So I expect there will
be a flood of application
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people the 7th December.
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So do it now.
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And other bank might have the
LVR rule change immediately.
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So you never know it can
change from any time, from now.
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Also, you might want
to do a paid valuation.
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Now how the banks establish these values.
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Now banks use third-party
valuation system.
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So that valuation system
is based on the historical
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kind of last few months sales history
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with the similar kind of
property in your area,
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it's sold for X amount.
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So they predict your property can be sold
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for the similar amounts.
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However, the mark is climbing.
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The price is increasing.
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So if they use historical data,
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that means the value that
they provide to the bank
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may be underestimated,
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So what you could do is you tell the bank
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or your advisors say,
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"Oh, my property is worth 1.1 mil,
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but I can approve it.
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Can you use that value to
provide a conditional offer
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and do the valuation
to approve that value."
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So that way you can potentially
get more equity out.
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And you don't need to pay
anything until it's approved.
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So you it's got a return
on that value right?
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So, probably that's
something you can consider
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but obviously it costs you money.
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Normally is about 0.1%
of the property value.
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For example, if your property is 1 million
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that probably costs you $1,000 to do.
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It just a rule of thumb.
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The valuer will quote the job
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and let you know exactly
it's going to cost you.
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I think we've covered probably everything
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I can think of.
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Now in the last couple of
days I've been asked most is
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how I will be impacted.
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Now if you haven't got your pre-approval
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then you need to be quick.
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'Cause as I mentioned
the new rule can apply
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from any time from now.
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So you need to get in ASAP.
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Now if you already have
a pre-approval to buy
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investment property
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your pre-approval is more likely to valid
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until it's expiring date.
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So try your best to
find a suitable property
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before it expires.
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'cause once it expires,
the new rule will apply.
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So if the equity is important
for rental property purchase
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try to do it before the offer expires.
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That's all from me today.
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I hope you find this information useful.
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Now, obviously everyone's
situation is different.
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If you want to find out
exactly what you need to do
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in your situation,
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please feel free to get in touch with us.
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We will make assessment
on your own situation
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and give you tailored advice.
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Thank you so much.
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Take care.
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Bye for now.
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