Sure, tightened lending means home loans are becoming harder for some to get, but it’s not all bad news for Property Buyers.
That’s because there’s also reduced competition from investors, housing prices are falling, and clearance rates are too, making it much more of a buyer’s market than in years gone by.
So let’s take a look at a few simple steps you can take to improve your chances of obtaining finance in the tighter lending environment. Armed with these tips you could be better equipped to take advantage of the weakened housing market.
Tightened lending requirements
The lending practices of Australia’s biggest banks have been tightening in recent years, firstly with the Australian Prudential Regulation Authority (APRA) moving in March 2017 to reduce the proportion of new interest-only residential mortgage lending.
Although APRA lifted that supervisory benchmark in December last year, the glaring spotlight of the Royal Commission into banking has ensured that lending conditions have remained tight and shows the government is doing something to control lending getting out of control, so we don’t have a similar situation to the US during the GFC.
Improve your chances of approval
Review
First things first: Ensure your credit rating is not hindering your mortgage application.
You can request a free credit report from one of three national credit reporting bodies, which are listed on this Australian government website.i
If you find errors in your report, the Australian Retail Credit Association (ARCA) has this guide to getting them corrected.ii ARCA has also developed these tips for improving your credit score.iii
Proof of genuine savings
Lenders consider “genuine savings” to be funds that you’ve accumulated over a period of time, including:
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- term deposits, shares,managed funds or investments that you’ve held for three months;
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- savings that you’ve held or accumulated over three months;
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- rental history for the past six months; and
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- salary sacrificing through the First Home Super Saver scheme;
Funds that lenders won’t consider as genuine savings include cash gifts, inheritance, tax refunds, funds from selling your car or other assets, the First Home Owner Grant and borrowed funds.
Set a budget
In the tightened lending environment, banks are paying closer attention to your spending habits and are now going through your transaction history.
It’s, therefore, more important than ever to set a realistic budget and stick to it and remember what comes up on your history may be viewed by the Lender.
This can not only help you provide proof of genuine savings, but it can also demonstrate to lenders that you’ll be able to make ongoing repayments as a key focus is serviceability of a loan.
Reduce your other debts
Lenders will be wary of extending more credit if you’ve got a bunch of credit card debts, personal loans, or car loans kicking around. Even evidence of an AfterPay purchase can be detrimental to your chances.
So take steps now to reduce any other debts. That may mean paying off the debt with the highest interest rate first, giving yourself a sense of achievement by paying off the smallest debt first, refinancing or consolidating your debt.
Once debt is reduced you should bring down the amounts of your credit cards as the bank views this as potential debt you can get into which will reduce your borrowing power,
For a better understanding of how tightened lending will impact your financial goals, you can call us as we’re here to help. We have spoken to a number of clients about the above with great success in our Oran Park office. We are able to provide services on Superannuation, Life insurance, Retirement planning and Investments in the Macarthur region and also travel to Parramatta, Liverpool, Penrith, Sydney CBD.
ii https://www.creditsmart.org.au/manage-your-credit-report/fixing-errors-in-your-credit-report/
iii https://www.creditsmart.org.au/know-your-credit-score/how-to-improve-your-credit-score/
