Whilst the banks figure out how to rebuild their reputations post the Royal Commission, the most immediate fallout has been increased uncertainty for would-be property buyers trying to access credit. And the concern is warranted, with 40% of loan applications declined in December 2018 (up from 8% in December 2017).
Though the pendulum will swing back to a new norm at some point, much of the tightening is here to stay. So becoming armed and getting ahead of the curve is the best form of defence.
Prove Sufficient Cashflow
Having a banking structure that separates regular commitments from discretionary spending and savings is the ideal way to show a lender whether a loan is affordable, but the reality is most of us move money around ad-hoc, and it’s messy. The messier the cashflow, the more scrutiny that will be applied to analysing living expenses, because the banks won’t take any chances of being criticised further for allowing unaffordable loans. It’s a case of proving affordability now, including how applicants would weather an interest rate increase.
The real complexity comes when consistency of income or profit isn’t straight forward. If income sources are less than 2 years old, or tax returns don’t show the full picture, shopping around for a lenders who’s policy matches the situation, or negotiating an exception becomes critical.
Comprehensive Credit Reporting was introduced in July 2018, and it effectively allows lenders to see far more data than ever before on an applicant’s Credit History. Many clients are shocked to find that a small indiscretion such as a late fee on a credit card can rule out a loan application, especially if the credit card needs to be refinanced. To avoid the need to pay significantly higher interest rates through a Specialist Lender, automating credit card and other loan repayments is a wise move in the lead up to an application.
But it’s not all bad news. Lenders are moving quickly to differentiate themselves based on unique policy design, and what “exceptions” to the rules they will apply. Receiving a decline from one lender definitely doesn’t mean no from all lenders. It’s about finding the lender who will assess the application as meeting their specific policies.
And while vendors are currently riding out the conditional finance periods as a means to locking in sales, as the competition for quality homes on the Surf Coast continues, the smart money is moving to sure up finance arrangements prior to offer. Because never before has an unconditional offer been more sought after by sellers.