Six tips to help improve your serviceability

Serviceability will affect anyone looking to buy property. Firstly, know where you stand with serviceability. If you’re not heading to a broker or a lender quite yet, then do some quick calculations.

If you’re unsure what is looked at when calculating your serviceability, then you need to read our article from yesterday detailing “Investment terms explained” about the components that dictate your serviceability.

You’ll also want to be very clear on what you can afford before looking to increase your serviceability. What you can borrow,and what you should borrow, are often two very different things. Prudent is the word to bear in mind.

Now you’re aware of what goes into the serviceability, and how different factors affect it, it’s time to see what you can do in your own life to reduce overheads. Of course, spend less and earn more are the two most commonly cited factors – and certainly they’ll both be effective. However, vying for a pay rise or taking on a second job might just not be practical for you.

Shop around

Firstly, see if you are calculated as being more serviceable elsewhere. An understanding of different lending policies, which a good broker may be a help with, can assist. You can read this article here about choosing the best mortgage broker for you. Different calculations are used by different banks and lenders.

Pay down debt (and avoid taking on more!)

If you can, it’s time to supercharge your debt repayments and clear them as quickly as possible. This is particularly good for buyers who are not intending to get into the market for some time. Avoid upgrading your phone to a new expensive plan and taking on increasing levels of debt, as all of these additional costs will decrease your serviceability (and, thus, your borrowing power). You might also consider putting off that extra child until you've purchased - children, due to the high level of expenditure required to raise them, are seen in the "outgoings" category.

Reduce credit card limits

High credit card limits affect your serviceability – even if you haven’t used them to their limits and do not intend to. Reduce them as best possible. You can increase them after you have your loan.

Decrease other overheads where possible

Yellow Brick Road’s Mark Bouris recommends reducing your overheads, as well as avoiding taking on more.

“Fancy car leases, big smart phone plans and cable TV charges can reduce your net income and affect your serviceability,” he says as one of his 20 tips to ensure you get your loan. You could consider consolidating short term debt into longer term debt to reduce your monthly repayments.

Ensure you are factoring in all of your deductions

There may also be some added deductions that you’re not claiming that affect your overall serviceability for your next property - for instance, are you claiming your maximum depreciation?.

Here’s a breakdown as to how this might work.

Increase rental income

There are a number of ways to increase the rent you’re getting for your current investment properties (here are some tips if you’re looking to boost your rental yield). This can be seen as a form of increasing your income. Margaret Lomas shares her tips around increasing rental property cash flow here.

Of course, the most important thing is ensuring your properties are being rented at market value in the first place and you’re not selling your property short.

What tips do you have for Property Observer readers to increase their serviceability?