Serviceability is defined as the ability a borrower has to meet loan repayments. This serviceability amount is determined by assessing the amount of the loan, how much the borrower makes, their expenses and other liabilities. The amount calculated is known as the debt service ratio. Most traditional lenders limit acceptable debt service ratios for loan applications to between 30 and 35%.

How do lenders assess rental income?

Most lenders only use 75% of the rental income when calculating a borrower’s serviceability. Lenders only use 75% because of the other costs associated with owning a rental property. These additional costs, such as maintenance and other fees, affect how much profit the borrower can make off of the rental income.

How can your clients increase their serviceability using rental income?

Lenders may use a more significant percentage of your client’s rental income if any of the following apply:

• They rent out the property to family members
• They have a housemate or subtenants
• The property can be used as a dual-occupancy
• They have a good credit history
• A low loan to value ratio on past home loans
• They have genuine savings
• They have steady employment

Another way your client can increase their serviceability using greater rental consideration is if they are living in their own home and intend to rent out both the investment property and their home by moving into a rental property with low rent. As long as the rent received from their own home is expected to be greater than the rent they will be paying, their serviceability will increase. When their serviceability increases, so does their borrowing power.

If your client is trying to secure a home loan using rental income, the experts at Mortgage Street may be able to help you find a loan home for them that is competitive. We are a non-bank lender, specialising in nontraditional home loans, such as loans using rental income, allowing us to offer loans with better terms and interest rates.