Lenders Adjustments

When assessing your loan application lenders need to decide how much money they can lend you. They have a number of legal obligations they need to satisfy when they do this. These legal obligations are generally referred to as Responsible Lending obligations.

When evaluating your Borrowing capacity lenders will assess your income, your expenses and your commitments.

Lender’s will not consider all income sources equally. They tend to favour regular salary payments over any other income source and therefore they will make adjustments/reductions or totally disregard income from other sources. As a general rule you need to prove 2 years evidence of steady income for it to be considered.

Different lenders might have different considerations and reductions, the following are general adjustments and they should serve as a guide. Please consider applying these lender’s adjustments to your Income categories for a more accurate calculation of your borrowing capacity.

Income – Pay & Salary

Lenders will accept 100% of your base income in their assessment. If your salary payments include Overtime income or commissions you might get up to a 50% cut on this portion of your salary unless you can show that these overtime or commissions payments are regular and ongoing.

Bonuses

Bonuses are often irregular and so lenders will normally ask for 1 to 2 years history of regular and ongoing bonuses, otherwise they might apply a discount rate or not accept it at all as part of their assessment.

Child Support

Lenders will consider child maintenance if the child is under 13 years of age, the payment is registered with the Child Support Agency and it has been received for at least six months.

Deposits

In general lenders will not consider Deposits as an income source, some lenders might consider it if you can show evidence of steady income from said source for the last 2 years and can prove that you will receive it permanently for the next 5 years. Lenders will evaluate on a case by case basis.

Expense Reimbursement

In general lenders will not consider Expense Reimbursements as an income source. If you have car allowance from your company 100% may be added as an income source. If you drive a fully maintained company car up tp $5,000 p.a. may be added as an income source.

Government Benefits & Allowances

100% accepted where the payments are considered as permanent for the next 5 years (unemployment benefit/sickness benefits are not acceptable). For example, Family Tax Benefits A and B are normally accepted if your children are under 11 years of age.

Interest Received

80% of Income from interest and dividends will be accepted as demonstrated on tax returns – income level must be evidenced over the past 2 years.

Investment Income

80% of Income from interest and dividends will be accepted as demonstrated on tax returns – income level must be evidenced over the past 2 years. Most banks will not accept retirement income as a valid income source.

Money Lent

In general lenders will not consider Money lent as an income source, some lenders might consider it if you can show evidence of steady income from said source for the last 2 years and can prove that you will receive it permanently for the next 5 years. Lenders will evaluate on a case by case basis.

Other Income

In general lenders will not consider other income sources, some lenders might consider them if you can show evidence of steady income from said source for the last 2 years and can prove that you will receive it permanently for the next 5 years. Lenders will evaluate on a case by case basis.

Refunds & Rebates

In general lenders will not consider Refunds and Rebates as an income source. If you have car allowance from your company 100% may be added as an income source. If you drive a fully maintained company car up tp $5,000 p.a. may be added as an income source.

Rental Income

Rental income from investment properties is accepted at a discounted rate of 75-80% to allow for costs such as property management, repairs, council rates, unrented periods, etc.

Retirement Income

Retirement Income won’t be accepted by most lenders to service your loan.

Rewards

In general lenders will not consider Rewards as an income source, some lenders might consider it if you can show evidence of steady income from said source for the last 2 years and can prove that you will receive it permanently for the next 5 years. Lenders will evaluate on a case by case basis.

Sales & Services

In general lenders will not consider Sales & services as an income source, some lenders might consider it if you can show evidence of steady income from said source for the last 2 years and can prove that you will receive it permanently for the next 5 years. Lenders will evaluate on a case by case basis.

Tax Refund

As a general rule tax refunds won’t be accepted. If you already own investment property and you are negative gearing tax deductible investment loan interest may be added back to net income (after tax).

This page was last updated on 24 February 2020