KEY TAKE OUTS:
- Increased Borrowing Power: CBA now allows owner-occupiers to include rental income when calculating loan servicing, enabling them to borrow more.
CBA’s New Servicing Changes: Owner-Occupiers Can Now Include Rental Income!
In an exciting move for owner-occupiers looking to boost their borrowing power, the Commonwealth Bank of Australia (CBA) has introduced significant changes to its servicing calculations. Now, owner-occupiers can include rental income when assessing their ability to service a loan, making it easier to access the home loan they need. Let’s break down what this means for homeowners, potential buyers, and the broader real estate market.
What Are Servicing Changes?
Historically, when applying for a home loan, financial institutions calculate your “servicing capacity” based on factors like your income, expenses, debts, and other financial commitments. However, many owner-occupiers who had rental income from investment properties or secondary dwellings found this income wasn’t factored into their loan servicing calculation.
But with CBA’s new changes, this rental income will now be included when assessing a borrower’s ability to repay their loan, effectively increasing their servicing capacity and the amount they can borrow.
Why Is This a Game-Changer?
- Increased Borrowing Power: If you’re currently renting out part of your property or even an additional dwelling, the rental income can now be factored into the servicing assessment, leading to a higher loan amount. For many owner-occupiers, this could mean the difference between securing the loan they need or falling short.
- Better Loan Approvals for Homeowners with Investment Properties: For homeowners who are looking to upgrade or refinance the inclusion of this rental income in the calculation provides more favorable terms. This opens up more opportunities for property upgrades, renovation loans, or even purchasing a properties.
- Reflects Changing Realities of Modern Homeownership: As the real estate market continues to evolve, so do the ways people use their homes. Whether it’s renting out a room or a secondary dwelling, this change better reflects the reality of modern living and the ways in which homeowners can supplement their income.
Who Benefits the Most?
- Current Homeowners with Secondary Dwellings: For those with a granny flat, separate studio, or even a basement apartment that they rent out, this change is particularly advantageous. It allows these owners to access more equity and potentially unlock funds for renovations or further investments.
- First-Time Homebuyers Looking to Rent Out Part of Their Property: If you’re considering buying a home and want to rent out a section (like a basement or an extra room), this change will allow you to include that rental income when determining your loan eligibility.
How Will This Impact the Market?
CBA’s new servicing policy could have wider implications for the housing market, especially in the following ways:
- Greater Access to Loans for Homeowners: By recognizing rental income, more owner-occupiers will find themselves able to secure larger loans, which could lead to an uptick in housing transactions.
- Potential for Market Growth in Multi-Dwelling Properties: More homeowners may seek out properties with the ability to generate rental income, leading to an increased demand for duplexes, homes with secondary dwellings, or homes with potential for subdivision.
What’s Next?
CBA’s new policy is just the latest in a series of changes across the Australian banking landscape as lenders respond to the growing demand for flexibility in borrowing. If you’re an owner-occupier looking to make the most of this opportunity, it’s a good idea to consult with a mortgage broker or financial advisor to better understand how rental income could impact your loan servicing.
This change is likely to encourage other banks and lenders to reconsider how they factor rental income into loan assessments, meaning that even more options could become available in the future.
Conclusion
CBA’s decision to include rental income in servicing calculations for owner-occupiers is a win for many Australian homeowners and first-time buyers. With the rising cost of living and the increasing trend of property sharing, this change could provide a much-needed financial boost for those looking to buy, refinance, or upgrade their homes. Make sure to explore this option with your lender, and you could soon find yourself in a better position to secure the home loan you need!
ABOUT KAY VITOGIANNIS:
Kay joined the Coutts team in May 2021 working as a Licensed Conveyancer within our Property & Conveyancing team, based in our Narellan office.
Kay has over 20 years of experience in the Legal industry. She began her journey in CBD Conveyancing firms as a secretary and attained her Advanced Diploma in Conveyancing in December 2010.
For further information please don’t hesitate to contact:
Kay Vitogiannis
Licensed Conveyancer
info@couttslegal.com.au
1300 268 887
This blog is merely general and non specific information on the subject matter and is not and should not be considered or relied on as legal advice. Coutts is not responsible for any cost, expense, loss or liability whatsoever in relation to this blog, including all or any reliance on this blog or use or application of this blog by you.
