CREDIT POLICY SUMMARY.

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1 CREDIT POLICY SUMMARY. FACT SHEET. Please use the following summary as a guide when considering whether ME Bank can meet the needs of your customers. Broker Credit Hotline Got a deal that stacks up? If you have an application or scenario that makes commercial sense, but appears to be outside ME Bank policy, please give us a call to talk it through or us at brokerservices@mebank.com.au. Residency Status The below table lists the eligibility requirements and conditions for residents and non-residents of Australia: Place of Residence Status Conditions Living in Australia Not Living in Australia Loan Purposes Acceptable Purposes Permanent Resident or an Australian or New Zealand citizen Temporary Resident Permanent resident or an Australian or New Zealand citizen Not currently a Permanent Resident or an Australian or New Zealand citizen Only 1 applicant is required to be a Permanent Resident or Australian or New Zealand citizen The borrower must be acceptable to the Foreign Investment Review Board (FIRB) Maximum 80% LVR Salaried income of a non-related entity (not be self employed) A Power of Attorney in favour of an Australian permanent resident A Power of Attorney in favour of an Australian permanent resident The borrower must be acceptable to the Foreign Investment Review Board (FIRB) Maximum 80% LVR Salaried income of a non-related entity (not be self employed) A Power of Attorney in favour of an Australian permanent resident Excluded Purposes Purchase of an existing established residential dwelling (including stamp duty, legal and associated costs) Purchase of residential vacant land Purchase off the plan (must be at completion) Refinances external and internal Debt consolidation Construction of a single or duplex residential dwelling Investment Home Improvements Equity Release/Cash Out Loans for business purposes Loans to pay tax liabilities Loans dependant on future savings plans Loans for construction where it is a cost plus contract Minimum and Maximum Loan Amounts Product Minimum Maximum SMHL Standard Home Loan $40,000 No designated maximum loan amount per property or borrower, however maximum LVR s apply. Ultimate Offset Account (including Members package) $50,000 (the offset account must be linked to a variable portion) No designated maximum loan amount per property or borrower, however maximum LVR s apply. Serviceability & Income Serviceability General guidelines in relation to serviceability include: Confirm gross income minus, post tax deductions, leases, etc. Voluntary deductions can be left in if it can be confirmed that the arrangement can cease at any time. Determine the customers monthly ongoing expenses. These expenses must include: Insurance (medical, vehicle, home) utilities (water, electricity, gas), phone/internet, medical, rates, travel (public transport) education/childcare, food, clothing and entertainment. This may also include other expenses such as child support, gifts etc. Determine ongoing liabilities and commitments i.e. credit card limits, personal loan repayments etc. 1

2 Buffers The serviceability assessment calculator (Loan Serviceability Calculator) usually calculates all buffers however there are a couple of interest rate buffer rulings that need to be considered: A 1.5% buffer to apply to existing ME Bank Home Loan minimum monthly repayments. Credit Cards with no limits must have the last 3 months of statements averaged and an additional 20% added to the average debit balance. This figure is treated as a monthly commitment. Bank Overdrafts must have an additional 1.5% buffer added to the overdraft interest rate. Overdraft commitment to be included as a yearly one off interest only amount based on the limit. A floor limit of 7.4% is applicable in the ME Bank calculator for all new lending. Confirmation of Income Controls Verification process % used for servicing PAYG: Salary/Wages (Full Time/Permanent Part Time/Second Job/Casual) Base income (excludes overtime) in current job, OR 12 months in the same field/line of work. Probationary periods are acceptable 1. A Payslip no older than 4 weeks old, OR 2. Letter from Employer (dated, signed and on employer letterhead) no older than 4 weeks; AND Any one of the following: 3. Most recent PAYG Payment Summary/Tax Assessment Notice, no older than 18 months; OR 4. Most recent Personal Tax Return, no older than 18 months When a Payslip or PAYG Summary does not state the income earner s name on the same page as the income details the following attestation clause must be made by a Broker on the document; I certify that this is a true and correct copy of the PAYG Summary in the name of. PAYG: Overtime/Penalty Payments/Shift or staff allowances: Also includes allowances that are standard conditions of employment (e.g. car, meal, shift etc.) Overtime can be used when it can be evidenced as being consistent over a 12 month period with the same employer or where it forms a condition of the role; e.g. industry type Verification of overtime is not required when servicing can be satisfactorily demonstrated from the borrowers base income Penalty Payments/Shift or Staff Allowance can be used when, at time of assessment, the borrower has had 6 months in current job, OR 12 months in the same field/line of work PAYG: Commission/Bonus Income in current job, AND A minimum of 2 years history of the customer receiving commission/bonus income PAYG: Contracted Employees in current job, OR 12 months in the same field/line of work Independent Contractors in current job, OR 12 months in the same field/line of work Child Support/Maintenance Payments must be payable for the next 5 years (dependents are < 13 years of age) 1. A Payslip no older than 4 weeks old where the Year To Date income supports the overtime component, AND 2. The most recent PAYG Payment Summary/Tax Assessment Notice, no older than 18 months 3. Most recent Personal Tax Return, no older than 18 months 1. Evidence must be provided confirming the amount being received. 2. This can be achieved through the following:- A Payslip no older than 4 weeks old; AND Any one of the following for each of the preceding 2 years: PAYG Payment Summary; OR Personal Tax Return Same as PAYG Salary/Wages In addition:- 1. A copy of current contract Same as Self Employed In addition:- 1. A copy of current contract 1. Court Order/Child Support Agency Statement or original solicitors letter; AND 2. Bank Statements, most recent showing regular Child Support payments over a period of 6 months with the last payment being within the last 4 weeks of the most recent financial information can be included in gross income Use the most recent year s amount. Exception Where the most recent year is > 120% of the previous year then the last 2 years average is to be used 2

3 Controls Verification process % used for servicing Maternity/Paternity Leave To use income whilst on maternity leave the following criteria must be met: 1. the income must be employer or government paid 2. the borrower has notified their employer of their intention to return to work and the employer has acknowledged this intention in writing 3. the income is currently being received and will continue to be paid until the confirmed returned work date Investment Income 1. A Payslip no older than 4 weeks old; AND 2. Letter from Employer (dated, signed and on employer letterhead) no older than 4 weeks acknowledging the borrowers intention to return to work and confirmation of the return to work date Note: ME Bank will use the lowest weekly payment received throughout the maternity leave period for servicing, whether this is received from the government or the applicant s employer. None 3. Two of the most recent Tax Returns, no older than 18 months; OR 4. Bank Statements, most recent showing regular Dividend payments over a period of 6 months Rental (includes display homes): Standard, National Rental Affordability Scheme (NRAS), Defence Housing Australia (DHA) Future rental: Where future rental income is being used (typically for investment properties under construction), the income source is acceptable provided there is a building contract in place with a registered builder Motor Vehicle - fully maintained company MV Allowed provided it is part of Employment Contract/ conditions. Vehicle must be fully maintained (e.g. insurance, registration, running costs, etc.) with no restrictions on personal use Motor vehicle - allowance Must be permanent part of income Salary Sacrifice Arrangments Must confirm that the arrangement can cease at any time 1. A current lease/tenancy agreement; OR 2. A rental statement issued by the managing agent or property manager; OR 3. ME Bank s valuation report; OR 4. Rental appraisal from a registered Real Estate Agent 5. For DHA only: Copy of the lease agreement For Display Homes only: 1. via an ME Bank Valuation Report **For additional NRAS guidelines please contact our Credit Hotline on Letter from the employer (dated, signed and on employer letterhead); OR 2. Employment Contract 1. A Payslip no older than 4 weeks old; AND Any one of the following: 2. Most recent PAYG Payment Summary/Tax Assessment Notice, no older than 18 months; OR 3. Letter from Employer (dated, signed and on employer letterhead); OR 4. Employment Contract Normal PAYG verification rules are to apply. However the salary sacrifice component can be verified through the following:- 1. A Payslip no older than 4 weeks old; OR 2. Letter or statement from the supplier (dated, signed and on letterhead) no older than 6 months old confirming the level of salary sacrifice Where more than one source of income verification is received, the lowest figure must be used Standard rental NRAS 65% (*) DHA less management fee (*) (*) must be input as tax free income into serviceability calculator Notional $7,500 can be added to the gross income added to gross income Note: any loan commitments must be included in the expenditure to calculate servicing of gross income Note: any loan commitments must be included in the expenditure to calculate servicing 3

4 Controls Verification process % used for servicing Self Employed There must be a minimum of 2 financial years trading Evidence must be provided confirming the amount of income. This can be achieved through the following:- Sole proprietorship or partnership Last 2 most recent years Personal/ Business/ Company/Trust Income Tax Returns (the most recent being no more than 24 months old); AND Most recent Tax Assessment Notice, no older than 18 months Company or trust 1. Last 2 most recently lodged Personal/ Business/Company/Trust Income Tax Returns (the most recent being no more than 24 months old); AND 2. Most recent personal Tax Assessment Notice, no older than 18 months 3. Last 2 most recent years Financial Statements (the most recent being no more than 24 months old) Use the most recent year s personal taxable income plus net profit/loss before tax of the business. Exception where the most recent year is > 120% than previous year then the last 2 years average is to be used Net Profit/Loss before tax of the business The net profit/loss before tax of the business is calculated as the net profit/loss correlating to the borrowers ownership portion (with the exception of superannuation) plus any of the allowable expense outlined below:- Interest expense: Interest on debt/s where these are being refinanced by the Bank Rent: if it is paid to the borrower Superannuation: any additional voluntary contributions paid by the business to the borrower that is above the minimum government requirement Non reoccurring expenses: expenses that will occur outside the normal course of business Depreciation Expense Add-back Up to a limit of 20% of the most recent financial year s business net profit before tax may be added back as tax-free income. Where a loss is incurred no depreciation add-back is available Note: Where the applicant s self employed income is not being used for servicing: To understand if there are any associated liabilities or losses an accountant s letter, most recent tax return or profit and loss statement is required. Where the applicant s company or business has ceased trading or deregistered: A letter from the customer s accountant confirming current status of the entity, and any personal liability of the customer is required Acceptable Deposit Sources Where the LVR <=85% suitable confirmatory evidence that the funds are genuinely owned by the applicant/s and not borrowed. Where the LVR is > 85% (excludes LMI capitalisation) genuine savings is required to be verified. A minimum of 5% of the purchase price is required to be verified. Genuine savings must be held in the borrowers name and can include: Funds held or accumulated in savings accounts for 3 months or more (including gifts or inheritance) Equity in residential property Term deposits held for 3 months or more Unacceptable forms of savings include: Tax refunds Work bonuses First Home Buyers Grant (FHOG) Gifts or inheritance held for less than 3 months and/or not in the name of the borrower Gambling proceeds Shares held for 3 months or more Employee funded superannuation contributions Re-drawable funds in a mortgage or line of credit Proceeds from sale of real estate 4

5 Maximum LVR based on Loan Purpose Loan Purpose Maximum LVR Using Base Loan Amount (i.e. excluding any LMI capitalisation) Purchase of a new or existing residential property 95% 1, 2 & 5 Purchase of residential vacant land 95% 1, 2 & 5 Refinance of a home loan (internal & external) 95% 3 & 5 Construction of residential property as an owner builder 50% 4 Construction of residential property with a registered builder 95% 4 & 5 Equity Release (cash out) 90% 5 Note Note 1. Purchases - First Home Buyers (FHB): where the purchase of a property or vacant land or construction of a property with a registered builder is being undertaken by a FHB as owner occupied the maximum LVR is 95% however the LVR inclusive of LMI can be up to a maximum of 97%. Applicants who have owned or currently own an investment property are eligible for this maximum LVR provided that they do not currently or have previously owned an owner occupied premises. 2. Purchases genuine savings required where LVR is above 85% - see section 9 3. Refinance of a home loan (internal & external): Maximum LVR for refinances including other debt consolidation and/or cash out is 90% plus capped LMI. 95% LVR must include LMI and is only for dollar for dollar refinances (including reasonable exit costs). 4. Construction: where the borrower is an owner builder and a registered builder the owner builder s LVR applies. 5. Multiple purpose which includes Equity Release: Any loan where the loan funds are released directly to the borrower/s, regardless of the proposed purpose, is subject to the following: 0% to 85% LVR - no limit applicable to cash out component. >85% to 90% LVR - cash out component is limited to 20% of the security value. >90% LVR - no cash out component allowed. Maximum LVR based on Property Type Security type & definition Maximum LVR without LMI Maximum LVR with LMI ACT Leasehold Leasehold is a system of land tenure. For Residential leases the lessee buys the right to use land under a lease for a term of 99 years. In every practical way though, the lessee builds the house and owns it just as anywhere else in Australia. Rural leases are usually granted for up to 50 years. Although the Land Act (ACT) does not provide any certainty of tenure by way of lease renewal it is nevertheless acceptable for the loan maturity date to exceed the leasehold maturity date. Display house A residential property that has been built by a builder or developer for the purpose of advertising/display purposes &/or offered for sale as an investment opportunity under a leaseback agreement High density house Uninsured: A residential property located in specific postcodes (as detailed below) and is within a development complex comprising more than 35 units/apartments Insured: A residential property located in specific postcodes (as detailed below) and is within a development complex comprising more than 10 units/apartments State Postcodes NSW 2000, 2001, 2004, 2010, 2011, 2017, 2077, 2138 NT 0800 QLD 4000 to 4005, 4215, 4217, 4218, 4870, 4879 SA 5000, 5001, 5005 TAS 7000 VIC 3000, 3001, 3004 to 3006, 3008, 3141, 3205 WA 6000, 6001, 6003 to 6005, % 95% 5

6 Maximum LVR based on Property Type Security type & definition Maximum LVR without LMI Maximum LVR with LMI Luxury Housing A residential property that is in excess of the medium price for that State and is usually of high value in either land or property due to location or quality 70% Above 80% Case by Case State Maximum property value for Land, Units, Townhouses Maximum property value for Houses NSW $2.5 million $3.5 million VIC/WA $2.0 million $3.0 million NT/ACT/QLD/SA $1.5 million $2.0 million TAS $1.0 million $1.5 million Multi Dwellings on one title Properties where there are two fully self contained residences constructed on one title (i.e. not subdivided/strata title) Properties where there are three or four fully self contained residences constructed on one title (i.e. not subdivided/strata title) 65% Above 80% Case by Case Residential Houses, townhouses, units, flats, apartments which are free standing or attached (semi-detached) and which are used exclusively for the purpose of private housing which is either tenanted or owner occupied Residential Vacant Land Unimproved allotments less than 2.2 hectares which are zoned for residential or rural residential housing A property >2.2 and <=10 hectares which is ready for the construction of a residential dwelling Note: these property types must be situated in fringe city/town location (i.e. must have a postcode which is nominated within the metro or regional locations) A property >10 and <=20 hectares which is ready for the construction of a residential dwelling Note: these property types must be situated in fringe city/town location (i.e. must have a postcode which is nominated within the metro or regional locations) A property >20 and <=40 hectares which is ready for the construction of a residential dwelling Note: these property types must be situated in fringe city/town location (i.e. must have a postcode which is nominated within the metro or regional locations) Small sized properties greater than 40m2 less than 50m2 Any residential property where the floor area of the property is >= 40m2 & <=50m2. This excludes outdoor alfresco areas, carports and garages University Apartments/Students Accommodation > 30m2 Often set up in a similar fashion to a serviced apartment or as a standard residential unit and, where the whole unit complex is marketed as a university apartment or student apartment. 80% 95% (note 97% for FHB inclusive of LMI Capitalisation is acceptable 80% 95% 80% Above 80% Case by Case 70% Above 80% Not available 60% Above 80% Not available 50% Above 80% Not available 6

7 The following tables outline certain types of securities that are considered ineligible by ME Bank:- Ineligible Securities Title Types Company Title Group Title Leasehold Title (except ACT leasehold or simular perpetual type lease arrangements) Purple Title/Moiety Titles Stratum Title is excluded in all States and Territories, with the exception in Tasmania where stratum title is permitted. Time Share Property Types Aged Housing Commercial Usage Properties Conversions from another purpose Hotel/Motel Redevelopment Income Producing Property (apart from Rent) Mixed Usage Properties Property Development Recreational or special use properties Serviced Apartments (including time share) Small Sized Property < 40 m2 Transportable or relocatable homes Unique Properties Vacant Land - Unserviced Environmental Issues Properties which are the subject of any resumption order or adversely affected by a notice from any Local, State or Commonwealth department authority Properties which have a frequent notified flood affectation Properties which are within an area of known site contamination as advised by the Panel Valuer or Solicitor Other Where the security property requires repairs which would cost more than 10% of the valuation (or contract price in the case of a purchase) and the borrower does not hold sufficient funds to carry out those repairs or will not hold sufficient funds immediately following settlement. The extent and cost of essential repairs are to be advised by a Quantity Surveyor at the borrower s costs. Construction Loans An applicant can apply for a construction loan by either a registered builder (fixed price contract only) or as an owner builder A non-structural renovation to an existing residential dwelling where the finance amount sought is > $100,000 is considered to be a construction loan A structural alteration to a residential dwelling Any loan where a on completion valuation is used Valuation The value of the security must be determined by a full valuation. The valuation type ME Bank must request is upon completion. As a condition of a construction loan, progress payments will be subject to the completion of a first and final progress inspection report which is to be undertaken by a panel Valuer. Where the LVR is above 80%, a progress inspection report is required at every drawdown request. Documentary Requirements: Please contact your ME Bank Business Development Manager or the Credit Hotline on Release of funds A copy of council approved plans and specifications is required prior to first progress payment Release of funds must only occur after owner s equity has been provided Where the construction is by an owner builder; release of funds must only occur once lock up or equivalent stage has been satisfactorily achieved. Prior to or at final draw down Certificate of Occupancy/Completion (if required) Buildings Replacement Insurance certificate or Certificate of Currency MEBANK.COM.AU/BROKER /0914 7