A lease doc loan is a simplified loan application process some banks use to assess commercial investment property finance deals.

It is not available for residential property loans.

If a deal meets the lease doc policy, then this can substantially reduce the amount of paper work required as compared to a standard / full doc commercial / business loan application.

Key parameters for lease doc loans includes:

• Loan amounts from $100,000 up to $3m
• Maximum loan to value ratio (LVR) of 75%
• Maximum loan terms typically limited by lease term or weighted average lease expiry (WALE)
• Servicing as low as 1.2 x interest cover ratio (ICR) (actual rate v sensitised rate)
• Interest only or principal and interest

An example of how this works in practice:

• Customer is looking to purchase an industrial property / warehouse for $1m
• There is a 3 year lease in place with a current net passing rent of $60,000 p.a.
• This represents a net yield of 6%
• Assuming a 65% LVR, suggests a $650,000 loan amount
• Adopting a 4% interest cost (on interest only terms) suggests a $26,000 interest cost p.a.
• In this instance, the ICR is 2.3 x which meets servicing thresholds
• Assuming a clear credit history and no adverse risk issues identified in the valuation – this deal should be approved
• In this instance, you as the customer would just need to contribute $400,000 to the purchase (assuming 5% purchase costs)
• This represents a cash on cash return of 8.5% ($34,000 / $400,000)

Minimum documentation requirements for a lease doc loan includes,

• Simplified application / consent form – Signed
• Fully executed contract of sale
• Fully executed lease agreement with an unrelated / third party (must not be related party)
• Formal valuation by an independent valuer – must be on lender panel
• Director / Borrower ID requirements (including driver’s license, passport, medicare card and / or trust deed)

In some instances, lenders may require additional information such as,

• ATO portals showing all taxes are current (existing entities only)
• 6 to 12 months loan account statements (refinances only)

Advantages of lease doc over full doc loan application:

• Far less documentation requirements meaning,
  • You don’t need to supply as much information,
  • It doesn’t take long to package this information up for a lender once indicative terms have been received
  • The lender doesn’t have as much information to review meaning a faster time to approval
• Depending on lender, there is no interest rate premium applied to lease doc loans
• Available for purchase or refinance
• Facilitates a purchase / refinance where the borrower might otherwise not meet lending standards / servicing thresholds but has capital to contribute to a purchase
• Suits both self employed and PAYG borrower types
• No annual reviews for sub $1m loans

Disadvantages of lease doc as against full doc loan application:

• Maximum $3m in group lending
• Maximum 70%-75% LVR whereas a higher LVR may be possible under a full doc loan
• Minimum lease term / WALE of 1 year
• Not available for properties which are 100% residential (eg. a block of units on a single title)
• Not available for self-managed super funds
• Not available for specialised property – office, industrial and retail only

We assist customers finance property under lease doc by,

• Understanding the potential property, purchase amount and lease to see if it meets policy (including servicing)
• Obtaining indicative terms (fees and rates) from a range of lenders and undertaking a comparison having regard to,
  • Deposit requirements depending on maximum LVR
  • Differences in establishment costs, interest rates and ongoing fees (noting these are not published and typically risk based)
  • Overall cost comparison over the life of the loan
• Packaging up the details and submitting to selected lender
• Confirming valuation options depending on lender panel
• Working with the lender and key stakeholders to facilitate loan approval and ultimately settle the loan

If your property purchase doesn’t meet lease doc policy or if we think there are better finance terms available, we will navigate this to ensure you get the best outcome from your finance.

Make sure you reach out to us via info@blambles.com.au and we’ll work through the nitty gritty with you to ensure you get a finance solution that works for you.

 

Invest wisely, borrow carefully and sleep comfortably