In the past, bank lending policies were more lenient, and getting a home loan application approved was quite simple.
However, in recent years, bank lending criteria has become tighter, and there has been a whole new level of inquiry that one must go through when applying for a home loan.
Let’s discuss some of the key changes.
Interest rate buffers
Lenders have buffered the interest rates on loans so that they assume interest rates are at least seven per cent. This is so they can assess your ability to make repayments should interest rates rise.
You should consider improving your buffers first before submitting a loan application. Saving money in an offset account is a great way to do this. Not only will it help with your loan assessment, it’s a great way to ensure you have the buffer that is needed to help your asset grow.
You need to validate your income and expenses
Today’s lenders will look at your income and your expenditure. There’s been a lot more focus on income, income sources, bonuses, your overtime, etc.
Quite a number of lenders are breaking these down into 13-15 categories so you have to be able to validate your income and living expenses. So, if you put a $0 cost in one of those categories, you will have to be able to validate why it’s a 0.
You need to be able to express in detail what it costs you to live per month which includes discretionary expenses such as going out to dinner.
Bank lending criteria is a lot more narrow
Due to the ASIC’s (Australian Securities and Investments Commissions) regulations and APRA’s (Australian Prudential Regulation Authority) restrictions, the bank lending criteria for loan applications have certainly narrowed. They are regulating the whole market.
In terms of bank lending criteria in the past, banks were very different from each other. One bank would favour lending in a particular industry, while another would favour lending investors with rental properties. However, banks these days tend to have a one-size-fits-all criterion for all borrowers. While they still have different credit policies for specific clients, it’s now a lot narrower than it ever was.
Having a loan application approved is definitely more challenging now than it was back then. Unfortunately, you may get a no, but that’s just how things are currently.
Nevertheless, sometimes, hearing no is actually the right thing. It’s a way for lenders to let you know that at this time, your finances could be at risk.
Saying no to an investment and doing nothing is sometimes also the right thing to do. Property investment is a long-term investment. A good property investor buys a property, waits for prices to go up, and saves that money, and then hopefully purchase another property in a couple of years.
However, if you are ready to start growing your portfolio, consider getting an experienced professional Chan & Naylor broker to increase your chances of having your loan application approved.
Aside from improving your portfolio, have a look at our accounting and advisory services that we do to help you achieve greater success.
Chan & Naylor Group has nationwide offices in North Sydney, South West Sydney, Sydney, Pymble and Parramatta in New South Wales, Melbourne, Moonee Ponds and Hawthorn in Victoria, Brisbane and Capalaba in Queensland, and East Perth in Western Australia that can assist you with your portfolio as well as any property tax or business tax enquiry that you may have. Contact us today.