Some major lenders (like banks) claim that they will lend for NDIS properties, but the devil is in the details. Most will use their standard investment property lending criteria to assess NDIS loan applications.
This makes it harder to get NDIS loans approved with a major lender, and even if they are, the amount you can borrow is usually less than you can get approved by an NDIS lending specialist.
Read on to find out why.
Major lenders tend to use their own conservative property valuations, rather than commercial market valuations when assessing loan applications. Property values across Australia have skyrocketed over the past couple of years, meaning that the conservative bank valuations may be $50 – $100K less than current market values.
The valuation used for a property when assessing a loan application is crucial. Lenders will typically have a maximum loan to value ratio (LVR) that they are prepared to accept. The LVR is the loan amount expressed as a percentage of the value of the property.
Different lenders will have different maximum LVRs. For example, some may be prepared to accept an LVR of 90%, while others may have a maximum of 80%.
The lower the valuation of the property, the higher the LVR. A conservative property valuation, therefore, lowers the amount you can borrow.
On the other hand, a higher commercial property valuation lowers the LVR and therefore increases the amount you can borrow. This is best explained by using an example.
Suppose you want to buy an NDIS property valued at $700,000. However, the bank conservatively values the property at $600,000, and has a maximum LVR for loan approval of 80%. This means that they will only be prepared to lend you $480,000. You will have to come up with a $220,000 deposit to buy the property, which may put it out of your reach.
However, if you apply with a lender through NDIS Loan Experts who use SDA market valuations in assessing loan applications instead, you would be able to borrow 90% of $700,000 (i.e. $630,000). You would be able to buy the property with only a $70,000 deposit. (We have excluded lenders’ mortgage insurance from the calculations for simplicity).
Rental income guarantees and projections
Another limiting factor when applying for an NDIS property loan with a major lender is that they tend to use residential property rent rates when assessing your ability to make your loan repayments, rather than specialist disability accommodation (SDA) rent rates.
SDA rent rates tend to be higher than market rent rates for standard residential properties. This means that SDA properties can provide you with more rental income to help you make your loan repayments.
The rental income is guaranteed by the federal government’s NDIS scheme when you have SDA tenants. SDA property income is government-backed for 20 years, which means the rent received is higher for the full two decades.
NDIS lending specialists
If you want to borrow the maximum amount to help you buy a high-quality NDIS property, you may be better off applying for a loan with an NDIS lending specialist through us at NDIS Loan Experts. Our lenders use commercial NDIS property valuations. They consider the higher, guaranteed NDIS property rental payments into account when assessing your ability to make your loan repayments.
Both of these factors will increase your chances of having a higher loan amount approved for the NDIS property you want to build or buy.
To learn more, contact us today.