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.
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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.
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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.
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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
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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.
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