If you haven’t experienced it yourself, you may have seen on the news – the mortgage industry is changing…
Last year we had APRA establishing a whole new set of rules and requirements for lenders and brokers to follow to ensure lending in Australia is responsible and within each borrowers means.
Now it is the Royal Commission’s turn. The Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry has opened its doors to begin further investigations into irresponsible lending that continues to make headlines among lenders.The Commission has a wide-range of inquiries to review, but mainly, the behaviour of the banks, compensation procedures and how the sector is regulated.
The impact is being directly reflected in your borrowing capacity or how easily you can obtain a loan. But why?! Well, lenders have always had their set of policies they must follow, but they have, a lot of the times, been flexible with their policy and sometimes applying an exception to it. Take a look at these examples:
– A self-employed client owns a business with a partner: 50% each. The company made $50,000 profit last financial year. Usually, Lender A will use the client’s share of the profit ($25,000) as income into their serviceability calculator. Not anymore… Lender A’s policy is not to use profit into servicing, even though it is evident through tax returns.
– A client on maternity leave looking at purchasing a property. Lender B would usually require a letter from the employer confirming client’s ‘return to work income’ and that would be acceptable to use in servicing. Now, Lender A is requiring the loan to service on client’s current maternity leave income, ignoring any income she will receive upon return to work.
What does this all mean: from our perspective, it is ensuring clients are only obtaining loans they are capable of repaying on the long term. The frustration though is that not all sets of policies are applicable to each and every borrower! A more specific approach should be taken into consideration when approving or declining a loan. So if we help you prepare a budget and you are comfortable with the Principal and Interest repayments on that loan, even with a possible rate hike, then why should your application fall through simply because it doesn’t tick the box on a specific rule?
The good news: lending is tough but not impossible, so here are some things you can do to ensure you are obtaining the desired loan:
– Reduce credit cards. The good old trick: if you are not actually using it to its limit, then are the bonus points you obtain from purchases more important than buying the house you want?
– Consolidate car or personal loans: this is a perfect opportunity to have less debts and also contribute to maximize your borrowing capacity.
– Know your options: if you receive income other than base wages, which lender can accept the majority of this towards servicing? Let us know and we will do the research work.
If you would like to find out more or is keen for a free consultation, please get in touch today!
The information provided in this website is General Information only, so does NOT take into account your objectives, financial situation and needs. Before acting on any information contained in this website you should consider the appropriateness of the advice having regard to your objectives, financial situation and needs.