Do you own an investment property? It may be a holiday rental or a commercial site. A second property can be very profitable and the rent you receive may make up a substantial portion of your gross income.

Some people may earn more from their rental property than they do from regular work! You would assume that this would put you in a good position to get approval for a mortgage. But this is not always be the case. Read on to find out more!

How do the banks view rental income?

An additional source of income should be a positive factor that strengthens your ability to repay the loan. However, not all banks include this form of earnings as part of your gross taxable income. The banks tend to view these people as a high geared and a higher risk of default! But why? Read on to find out more.

Why do the banks take that view?

If you are an individual that owns a rental property it is likely that you have a high level of debt and multiple mortgages. Despite increased earnings, your income is usually susceptible to economic movements and as such your ability to repay the loan amount may be hampered in the future. But while most banks will take a very discretionary and complicated view of rental income, we know of banks that WILL consider it!

Speak to us to find out if your income will be accepted!

If you have a property in mind the best thing to do is contact us on 1300 886 115 or enquire online and speak to an expert mortgage broker. We know lenders that accept up to 100% of your rental income. However, it is important that your total income is not too rent reliant! This factor is one of the principle reasons that people cannot borrow as much as they would like.

It is best if you are also working a job as well as your rental income. No matter if you are employed part time, as a casual worker, or on shift allowances; it will be easier to find you a loan. However if rental income is your only form don’t worry, we can still help!

What lenders will accept rental income?

Every lender is unique in their assessment of rental income and the amount that any property investor will be able to borrow varies! We know some major lenders that find rental income to be a perfectly acceptable source of income. But how much income will they accept?

How much will the banks accept?

Banks do not take 100% of the rental income for an obvious reason. They assume that that 20% is needed to finance repairs, maintenance, council rates and other fees that generally come with owning any rental property. If you own a high density dwelling or apartment, some banks will only accept 50% of your rental income.

Some lenders will only take 75% of your gross rental income and add that to your gross salary or wage to come to an assessment of your ability to service the loan amount you require. Although, some lenders will accept 80% of your rental income!

What is rental income?

Rental income is the income that is received for the use or occupation of property. The Australian Taxation Office (ATO) requires that you include any rental income as part of your gross income for the purposes of a tax assessment.

Any income earned from an investment property will count as rental income including:

• Advance rental payments
• Late payments
• Current payments
• Payments received for lease cancellation
• Forfeited bonds

However, it does depend who is providing the income.

If you earn rental income and are having trouble getting your loan approved we can help. Enquire online or call 1300 886 115.

What type of rental income is included?

The most common type of rental income is that received for the rental or a house, apartment or office building as well as other leases for non-residential properties such as shops or warehouses. Other types of rental income include:

Family

Renting your investment property to family can be very advantageous. It is generally easier to ensure that the property is well kept and rent is paid on time. However, some banks consider this as a domestic and not commercial arrangement. This is because the rental agreement is largely informal. There are some lenders willing to accept rental income derived from family, if you produce evidence of payment such as tax returns and a letter from your family.

Sub tenants

Sub-letting unoccupied rooms in your house to other people is an additional form of income that can help toward mortgage repayments. This additional financial help is the primary reason why people choose to sub-tenant. However, some banks may not accept this as income. It is best to contact one of our brokers. We know of some lenders with more flexible policies that may allow you to borrow, taking into account a variety of factors including:

• How much you wish to borrow
• Your financial situation
• Whether you heavily rely of the rent of the sub-tenant
• Other forms of income

Dual occupancy

This is the term used to refer to properties that have been converted in order to provide multiple places of living on the same block of land. These include:

It is common practice for the banks to accept proof of rental income generated from these properties. There are generally formal rental arrangements in places, giving the banks peace of mind that the rental income is fixed and secure. However, the banks don’t accept all forms of rental income. This may affect your ability to get a loan!

What is ‘rent reliance’?

If the banks consider you as ‘rental reliant’ this means that they have calculated that the majority of your income comes from the rent that you receive, rather than your actual salary. As such, the banks tend to view you as high risk. This is because your primary source of income is not necessarily secured and subject to market fluctuations. There may be periods where you are without tenants, incur unexpected expenses or reduced rental income due to market downturns.

How do I know if I am too rent reliant?

In order to determine if too much of your gross income is from your rental property, consider the following example taken from one of our major lenders policies:

Generally, your rental income should not exceed 40% of your gross salary if your income is less than $60,000. So, if you are earning $56,000, your rental income per year should not exceed $22,400.

The percentage of rental income increases to 65% for those earning between $60,000-$100,000. If your income is greater than $100,000, your rental income should not exceed 75% of the amount that you earn.
If you are too rent reliant, the banks may decline your loan.

However, we know of some lenders that will accept your income no matter how reliant you are!

Contact us today!

If you’re a property investor and rental income forms a substantial part of your gross income it is best for you to speak to us! Different lenders have different policies and servicing criteria. We will ensure that you apply with the right lender to maximise your chances of getting approval for your employment mortgage application. Enquire online or call 1300 886 115 today!