Retail Lending Policy RP 1.7: Security and Loan-to-Value Ratios Published date: 20/05/15 Version: 3 Authorised by: Senior Manager Credit Next review date: 31/05/16 1. INTRODUCTION This module outlines P&N Bank's policy for retail loans secured by residential property. It documents the acceptable and unacceptable security types and the applicable LVRs to be applied. Where a property falls into more than one security category the lowest stipulated LVR is to be used. The property value will be determined according to the valuation obtained. Refer to RP 1.8 Valuations for further guidance regarding acceptable valuation types. Exceptions to the rules set out in the following tables must be referred to an appropriate DCA along with relevant mitigants as to why the policy exception should be approved. Existing security held by P&N Bank that has previously been accepted outside of this policy will remain in place and does not require DCA re-acceptance unless the new application results in an increase to the LVR or a change to the overall security position. 2. LOAN TO VALUATION RATIO The loan to valuation ratio (LVR) is used to determine the maximum amount that P&N will lend against a security. The LVR is calculated using the lower of the valuation or purchase price/building cost. The LVR is calculated as follows: Loan Amount Property Value The loan amount is the sum of the proposed loan plus any balance outstanding on prior encumbrances plus any funds available for redraw or undrawn funds (e.g. construction loan). An overall LVR may be calculated where multiple properties exist securing multiple loans. In this circumstance the loan amount is as above plus any loans also secured by the linked properties. The property value will be the sum of all values for the linked security. 1 3. ACCEPTABLE SECURITY TYPES ***Where a property falls into more than one security category the lowest stipulated LVR is to be used. Security Type Metro (All states) Residential property <= $2,000,000 P&N Max LVR 80% Metro Residential (All states) property > $2,000,000 Non-Metro WA Residential property <= $1,000,000 Non-Metro WA Residential property > $1,000,000 70% Non-Metro (non-WA) Residential property 70% Restricted Location 80% - Owner Occupied and Principle & Interest only. Rural/residential Zoning <= 10 hectares in size 80% 70% 70% - Investment and/or Interest Only 70% LMI Max LVR 95% for existing members (3mths min). 90% for new members. Will depend on LMI policy for the specific location. Will depend on LMI policy for the specific location. Will depend on LMI policy for the specific location. Will depend on LMI policy for the specific location. Will depend on LMI policy for the specific location. Will depend on LMI policy for the specific location. Rural/residential Zoning > 10 and <= 40 hectares in size Properties with living area <50m2 and >= 40m2 60% Multiple properties on a single title 70% Will depend on LMI policy for the specific location. Heritage listed properties 70% Owner Builder Construction Reverse Mortgage Security 70% Will depend on LMI policy for the specific location. N/A 80% Will depend on LMI policy for the specific location. Will depend on LMI policy for the specific location. N/A Term Deposit As per RP 1.14 Reverse Mortgage Policy 100% Mixed Use Zoning 70% N/A Commercial Property Display Homes 70% 60% N/A N/A N/A Comments Includes: residential homes units apartments townhouses and villas vacant land (max size 2.2 hectare) properties with a living area (excluding balcony) 50sqm or greater Excludes: restricted locations (refer below) properties on the unacceptable security list multiple properties on single title rural/residential zoning mixed use zoning heritage listed property properties with a living area (excluding balcony) under 50sqm Refer to section 7 for acceptable non-metro locations outside of WA Any locations within post-codes 6600-6799 The property must be solely for the purpose of private residential occupation. Income may be generated only through renting of the property to a tenant. The valuation of the property must not include any income producing potential or any machinery or equipment. This is limited to Metro capital city locations and excludes serviced apartments. The living space is defined as the total floor space excluding balconies and car space. Limited to 2 dwellings per title unless the property will be sub-divided as part of the lending transaction. Valuation to be completed on an 'in one line' basis. Excludes purple titled properties. Review of the valuation should be carried out to investigate any restrictions imposed by the listing. Refer to RP 1.12 Construction Loans for further information. TD funds to be held with P&N. Can be used as additional security and/or as guarantor security. Not to be used on a stand alone basis unless as a short term measure in between property settlements. Where it comprises the ability for residential and/or commercial use. We will take when the intended use will be residential. Can only be used as additional security. Can only be used as additional security. If rental income from the property is required for the NDI this needs to be verified from the valuation at market rates (not based on the actual rental income derived in it's use as a display home). Refer to sections 6-7 for metro/non-metro classifications. 2 4. NON-PREFERRED SECURITY TYPES Non-preferred residential property security will generally not be accepted as security. It can only be used as security if approved by an appropriate Delegated Credit Authority. The list of security types listed in the table below are P&N non-preferred security types: Security Type Property with living area <40m2 Properties identified as incomplete, structurally damaged or dilapidated Properties with unapproved structures Island properties Properties with restricted zoning Properties with water rights Boarding Houses/Hostels Hotel/Motel conversions Income producing rural properties Mobile/relocatable/ transportable homes Time share property Student accommodation Caravan park bays Crown land Limited title (any defects) Land subject to license to occupy Vacant land > 2.2 hectares Stratum title, company title, moiety title and purple title properties Property attached to management rights including serviced apartments and retirement/lifestyle villages Properties affected by local government or state planning schemes Any other specialised property Comments The living area is defined as the total floor space excluding balconies and car space. Current value of property, marketability in current state and cost of restoring property to satisfactory condition will need to be ascertained and taken into account. If loan funds are not being provided for necessary repairs/works, retention of member’s funds to complete the repairs/works may need to be considered. Properties with structural problems may only be considered where the application involves a project to rectify the structural problems under the supervision of a structural engineer. E.g. properties where the improvement value is less than 15% of land value should be treated as land only. Will be considered where the value of unapproved structures is deducted from the market value of the property. (Councils have the authority to order demolition of any non council approved structures). Properties located on an island without sealed road connection to mainland. Such properties are not readily saleable in the event of default due to geographically isolated location and limited market demand. Typically extend to property’s that have a restriction limiting ownership to the over 55 age group but extends to any zoning that may subsequently impact the saleability of the property. In those cases where water rights (entitlements) are identified a mortgage will be required (over both the property and, where the water right exists as a separate entitlement, separately over the water right/entitlement). In this way the security position of P&N will be protected. Given their unique nature there is a limited re-sale market for this type of property. Given their unique nature there is a limited re-sale market for this type of property. Refer to the acceptable security list for guidance on when rural/residential security can be taken. Can only be considered when the house is fixed and plumbed in at its final site. Given the management rights that are usually connected to these types of property they can not be considered as security. Given their unique nature there is a limited re-sale market for this type of property. Can be considered as additional security depending on size and location of the property. The management rights will usually restrict the bank in it's ability to take ownership of the property in the event that it needs to. Consideration of this type of security will be given only as additional security and upon review of the management contract for the property. 3 5. PROHIBITTED SECURITY TYPES The National Consumer Credit Protection Act (NCCPA) prohibits a credit provider from taking the following types of security: Security Type Third party mortgages Employee remuneration, employment benefits or superannuation benefits Essential household property Goods used to earn income Comments A mortgage cannot be taken from a third party to directly secure the obligations of a borrower under a credit contract. In this situation, a guarantee must be taken from the third party. Each mortgagor must be either a borrower or a guarantor. A mortgage cannot be taken over these benefits unless permitted by the NCCPA regulations. Currently the regulations do not permit any mortgage to be taken. A mortgage cannot be taken over goods that are essential household property. Essential household property is property that is reasonably necessary for the domestic use of a person’s household, having regard to current social standards, and includes recreational and sporting equipment. A mortgage cannot be taken over goods that are used by the mortgagor in earning income by personal exertion if the goods do not have a total value greater than the relevant limit prescribed from time to time under the Bankruptcy Regulations 1966. The relevant limit varies in accordance with the Consumer Price Index. A copy of the latest figure can be obtained from the Insolvency and Trustee Service Australia (www.itsa.gov.au). Security is not to be taken by P&N in any circumstance if the taking of a mortgage or charge is prohibited by the NCCPA. 6. WA: METRO/NON-METRO CLASSIFICATIONS Zone Metro / nonmetro Perth Metro Metro Albany Metro Bunbury Metro Busselton Metro Geraldton Metro Karratha Non Metro Port Hedland Non Metro Broome Non Metro Kimberley Non Metro Pilbara Non Metro Gascoyne Non Metro Mid West Non Metro Wheatbelt Non Metro Goldfields Non Metro Peel Non Metro South West Non Metro Great Southern Non Metro South West Hub Non Metro 4 Greater Bunbury Non Metro 7. NON-WA: METRO/NON-METRO ACCEPTED LOCATIONS State NSW NSW NSW NSW NSW NSW Victoria Victoria Victoria Victoria Victoria Queensland Queensland Queensland Queensland Queensland Queensland Queensland Queensland Queensland Queensland NT ACT SA Tasmania Tasmania Location Sydney * Newcastle Gosford Wollongong Albury Maitland Melbourne * Geelong Ballarat Bendigo Wodonga Brisbane * Gold Coast Townsville Caloundra Buderim Noosa Cairns Mackay Rockhampton Toowoomba Darwin * Canberra * Adelaide * Hobart * Launceston Metro/NonMetro Metro Metro Metro Metro Metro Metro Metro Metro Metro Metro Metro Metro Metro Non-Metro Metro Metro Metro Non-Metro Non-Metro Non-Metro Metro Metro Metro Metro Metro Metro *Indicates locations acceptable within the entire metropolitan area for these cities. Any location not listed above is considered unacceptable security for P&N Bank. 5
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