Last week we heard that Citibank (the 11th largest bank in the world) and Heritage bank (Australias largest customer owned bank) are no longer offering preapprovals for their customers. This means unless you have exchanged on a property, or are refinancing, they will not accept an application from you.
This is in addition to some banks which have already stated that they only offer “System Generated” approvals which includes Macquarie, ING, Resimac, as well as some other lenders depending on certain conditions. The reason for this is that it eases congestion within their assessment teams, and enables them to issue approvals faster – some banks have a conversion rate of less than 20% (i.e. less than 1 in 5 loans they assess will actually settle) That’s a lot of work for no return, so a system generated approval is a big cost saving as well.
- What is a system generated approval?
A system generated approval is where the information entered by the broker or branch staff member satisfies the requirements by the bank for approval. In other words, the supporting documents are not checked and it is not fully assessed. When a system generated approval is granted however, as long as the information entered into the system is accurate, they are just as good as a fully assessed approval. The assessment rules are the same in the system as they are for the assessors themselves.
- Why is a fully assessed preapproval important?
A fully assessed approval is especially important when your situation is a little complex – e.g. you’re self-employed, have unusual income etc.. In this case we would insist on a fully assessed approval. Every loan will eventually need to be fully assessed, so if there is something in your documents which the bank is not happy with when this happens, you may exchange on a property only to find that the bank reneges on the system generated approval. In this case, the system generated approval is pointless.
- How will I know if my approval is system generated?
System generated approvals are instant, so if you are approved immediately you can have a safe bet that it is system generated. It is also important to note the conditions on the approval. If it is subject to verifying documents, it is probably system generated, although It’s always safe to ask!
At Peasy, we believe in being as prepared as possible, so if a fully assessed preapproval is necessary to your situation, we will make sure we insist on it so there are no nasty surprises further down the track. This may mean that some of the lenders mentioned above are off the table, although there are still plenty of other great lenders to choose from.