Once you have completed the process of considering whether borrowing money from Christian Savings is a good idea for your church or charity, the next biggest question is “how much can you afford?”.
LVR stands for ‘loan to value ratio’ and is the ratio between the size of your debt against the value of the property that secures it. Understanding LVR is important as like most lenders, Christian Savings requires that all borrowing be secured by property which can be mortgaged. The maximum amount of funds advanced is determined partly by the LVR for each lending proposal.
Most lenders set a maximum LVR threshold for different types of security. The current LVR thresholders for Christian Savings are:
- 80% for residential property; and
- 60% for all other lending.
(Note that the above thresholds may change depending on each individual application. LVR is only one element of determining the amount an applicant can borrow)
Example: Your church wants to buy a residential property worth $1,000,000. We could lend up to $800,000 and the church would be required to provide the other 20% by way of deposit.
To enable us to complete our LVR assessment, we will need to receive a registered valuation for any property which will be used as security for a loan.
Another calculation we carry out targets your servicing capacity. This concept is known as the debt service cover ratio, or “DSCR”. Effectively, this limb of the test involves assessing your operational cashflow to ensure that once you receive the loan, you will be able to make the required repayments of interest and principal.
The DSCR is the ratio between your available cash flow against the costs of the proposed debt. Our assessment threshold is often set at approximately 1.2x and this means you need to demonstrate that you can cover the costs of the debt with a 20% surplus. This surplus (or buffer) is important as it will be relied upon to meet unforeseen costs or rises in interest rates.
Example: Your church wants to borrow $800,000 for the purchase of a residential house. The current estimated principal and interest costs are $60,000 per year. The church will need to demonstrate that it has a surplus of $72,000 or more that can be allocated towards the cost of the loan. This figure may include new income from the property or redirection of existing non-core expenses that can reasonably be marshalled to meet the principal and interest obligations.
To enable us to complete our DSCR assessment, we will need to receive properly prepared financial accounts for the last three years, details of new income streams and cost reallocations.
The DSCR and LVR are two tools Christian Savings uses to ensure any borrowing is adequately secured, together with ensuring an applicant is not stretching themselves beyond their capacity.