It is as much fun as it is sometimes informative to look at the applications we refused, than those we accepted. In this case, it was a family trust acquiring a commercial property in Melbourne with a contract price of $5 million, seeking a loan of $4,000,000 (80% LVR). The purported strength of the application was as contracted rental income that would cover the cost of servicing. However, on investigation, the rental agreements were found to be less than 12 months in term, and we were concerned about the arms-length nature of one of the tenancies. Furthermore, the proposed exit was refinancing within 12 months. Clearly, this is not the right market for being able to fund a bank lender for $4 million on an 80% exposure where serviceability is provided solely from rental income, particularly where the contracts are short-term and of a questionable arms-length nature.

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