It has been a very interesting first quarter of 2019. With the Royal Commission, State and Federal elections there has been much attention focused on the finance Industry. Whilst lending growth is at a 10-year low, home loans are still being approved; however, it’s imperative that you know what the market is doing so you can put yourself in the best possible position.
To get an insight into what the market is doing and how you can get ahead, here are the top 5 questions I get asked:
With approvals at a 10-year low, are loans being approved?
Indeed there has been a lot of negative media commentary stating that fewer and fewer loans are being approved, however loans are still definitely getting approved. The difference now, is that the process is taking a bit longer than it was before.
Lenders now require more detail about income and expenses as well as additional verification checks, which means the assessment of your loan application will take more time. Sometimes the process requires that your documents are re-submitted to another lender to get the outcome you want, which again adds time.
All of this additional information means that loans are getting approved but getting pre-approval for your finance is critical and it’s worth starting early!
Why is it taking so long for lenders to approve applications?
The process to approval is much more drawn out now with additional information required before the lender will even consider the application. Every line of the application is then analysed in detail and even your living expenses are examined thoroughly to ensure what you have declared is in line with your actual expenses and thus you can afford to repay the loan.
One of the outcomes of the Royal Banking Commission is that assessors are now fearful to make their own decision, which means the assessor will often speak with their supervisor to ensure the application meets all necessary criteria.
Most lenders are taking 3-5 days for pre-approvals but there are quite a few who now take over 5 days. I do have a couple of great lenders that can deliver 24-hour approvals with no rate premium.
Why are the lenders asking for so many documents?
Gone are the days where income evidence plus deposit evidence was enough to satisfy lenders; now they need evidence of good conduct for everything: credit card/home loan/car loan/transaction accounts etc.
We verify these details line by line prior to submitting your loan application to ensure the lenders will have everything they need and thus can make the fastest possible decision. If they don’t and they have to come back and request further documentation, then the process gets longer again.
Why has my borrowing capacity dropped?
Your borrowing capacity is the amount that you can borrow, based on your income and expenses.
Your borrowing capacity from 12 months ago will be lower today. Many factors have influenced this, including:
- Credit card limits: banks assess your ability to repay down a fully drawn card over 3 years. For every $10,000 that is $278 per month as an extra expense.
- Personal loan or car loan: many banks now use the limit plus term left at 7.25% (minimum) as a repayment. Sometimes this could be double the actual repayment you are making.
- Living expenses: these are heavily scrutinized which means the minimum expense threshold used by banks has increased dramatically and is based on household income plus dependents.
- Assessment rate (risk buffer): Your assessment rate used to be 2% above the loan interest rate, however the minimum assessment rate is now at least 7.25%. For example, if your loan interest rate is 3.75%, your loan is being stress tested at a minimum of 3.5% higher. So you may think you can make the repayments with 3.75% interest but the lender analyses your ability to make those repayments with at least 7.25% interest or more.
All these factor have compounded over the past few years to reduce your borrowing capacity. However, this is not necessarily bad news, as the lenders are protecting themselves and protecting you, ensuring you can afford to repay the loan.
Why aren’t you using the big 4 banks as lenders?
Lenders are a huge topic of conversation. Last year at Pink Finance we used 23 lenders and most applications were not submitted to the big 4 banks, however policies, rates and turnaround times are constantly changing. At present the most competitive lenders are not the big 4 banks.
To get the cheapest rates we often have to look at lenders with longer lead times. Everyone has different priorities and needs, so lender selection is varied and every lender has their place.
Even with all these changes to the finance industry we at Pink Finance are busier than ever before. We work closely with our clients to ensure all details are accurate and loan applications are of the highest quality to get the best possible result for you. We are getting loans approved on a daily basis and we know what it takes.
The broker market is becoming more important than ever. All this research and communication with the banks is done for you so that you can focus on looking on properties. Use them, they love to help you and take the stress out of the process for you.
If you have any questions, don’t hesitate to get in touch.