Why is a home loan so much more difficult?
Why did this happen?
Getting a home loan was simple, but it can now be a frustrating experience. It is primarily because of the changes imposed on the banks by our government.
These changes have been made to keep our financial system indisputably strong, but there have been unintended consequences.
You can work with your mortgage broker to adapt to the way banks operate in 2018 while getting their approval.
If you agree to buy a property before your loan is officially approved, you are taking a significant risk. We recommend that you exercise caution, especially if you are borrowing more than 80% of the value of the property or if you are in an unusual situation.
You will need to provide more documents
In the past, banks could accept what you tell them on the mortgage application form.
Today, they need to check a lot more of your situation and the mortgage documents that you provide. In particular, they usually ask for more statements for your current account and for all your debts.
It is often progressive: they ask for a document, then another!
This back and forth is very frustrating for everyone.
Solution: The best way forward is to give banks what they want. To fight will not get you anywhere. You can also ask your mortgage broker if lenders require fewer documents. Check our checklist to prepare a home loan application.
The lender will ask more questions
The Australian Prudential Regulatory Authority (APRA) and the Australian Securities and Investment Commission (ASIC) require banks to keep records of why they have assessed your claim in a certain way.
Something in your application may seem obvious to us, and often to the bank too. However, she needs a written confirmation from us before approving her mortgage.
A good example is that they can see a deduction on your payslip for 800 euros per month and that you have also written in your application that you have a car loan with payments of 800 euros per month.
They will ask what the deduction is and therefore your mortgage application will be delayed.
Solution: Just answer their questions and your home loan should progress to be valued. Plus, give them more time to evaluate your loan.
Requests take longer to be approved
As banks ask for more documents and more questions, each request takes longer to evaluate and they can make multiple round trips with questions before approving it.
Lenders with special pricing offers are particularly affected by this situation as they are inundated with a large number of applications.
Solution: Get an approval before you start looking for a property. If you have found a property and you now need a mortgage loan in a hurry, do not apply to the cheapest lender. Instead, apply with a lender who is fast and has a competitive rate.
Your living expenses will be scrutinized
In the past, banks used the Henderson Poverty Index or the Household Expenditure Method (HEM) to calculate the living expenses of your family.
Now they ask you to estimate your living expenses and then take the highest HEM or your reported expenses.
If your household income is high, it will adjust your living expenses to your income. This significantly reduces your borrowing power compared to a few years ago.
If your reported living expenses are too low, your mortgage broker may be in trouble for not having had a constructive discussion with you about your living expenses.
What if you have high living expenses?
Now is the time to consider budgeting and changing your lifestyle.
It makes sense to do it several months before making a new commitment, such as a home loan, because you will have a higher borrowing power.
Solution: Some lenders may consider a reasonable reduction in your living expenses that you just made. Talk to your mortgage broker to see if it can work for you.
Do not expect banks to make common sense
Most people do not often ask for a home loan in their life.
Even if you are not the first home buyer and you are upgrading or refinancing a home, it may be 3 to 10 years since you last applied for a home loan.
The way banks operate is very different from the expectations of most borrowers.
Unfortunately, many buyers take risks by signing a sales contract to purchase a property without prior approval.
If they do not meet the current strict lending criteria, they risk losing their deposit.
APRA has asked banks to be strict in making exceptions to their lending policies.
As a result, they are very unlikely to approve your home loan if you do not meet their credit criteria. Do not expect them to show common sense!
Solution: The key is to apply with the right lender. Our mortgage brokers know each lender’s policies and even have access to non-bank lenders who can always use common sense. Non-bank lenders are not affected by the restrictions imposed by APRA and, in many cases, have interest rates similar to those of banks.
Your borrowing power will be reduced
APRA has placed restrictions on how banks assess your borrowing power in the last two years.
This has had the biggest impact on high incomes , due to changes in the way their living expenses are valued, and real estate investors , because of the way in which interest and investment loans are valued and a new “debt-to-income ratio” that prevents you from borrowing more than six times your income.
They do it because interest rates are low and if people are borrowing too much now, they may not be able to repay their loans later if interest rates go up.
However, many people have a good reason to borrow up to their limit and this would not expose them to a risk of future rate changes.
For example, a real estate investor may plan to sell one of his properties if interest rates rise significantly.
Solution: If you need to borrow the maximum amount possible, we can use a multi-lender strategy or apply to non-bank lenders that are not affected by the APRA restrictions. We believe in responsible lending and will not help you borrow more than you can afford.
Investment loans are more expensive
In recent years, APRA has limited the growth of investment loans for banks.
As a result, banks are updating housing loan rates and increasing the prices of investment loans.
You may find that some banks are struggling to get approval for an investment loan or to stop making investment loans.
In these cases, it is better to apply to another bank or a non-bank lender.
The investment cap is replaced by a debt-to-income ratio cap that is designed to limit highly indexed investor lending while leaving owners and investors with a minimum of unmodified gears.
Solution: This is something one of our mortgage brokers can help you with, so fill out our free assessment form and let us know what you are up to. We have access to lenders whose investment loan rates are lower than those of the big banks.
Interest loans only are endangered
In reality, interest-only loans cost more in interest over time and may cause borrowers not to repay their property before retirement.
APRA requires banks to limit interest-only loans; they have therefore put in place strict qualification criteria and raised interest rates. In a recent speech by the Reverse Bank, concerns were also expressed about interest-only loans.
Interest only loans are not suitable for most homebuyers but may be suitable for investors depending on their strategy.
Solution: We strongly recommend that you consider paying principal and interest instead of choosing an interest only loan. It is quite possible that in a year or two, interest-only loans can be banned altogether.
Your retirement age can be assessed
Only a few years ago, banks would approve a loan of 30 years to 60 years!
Now they consider your retirement age and if you can repay the loan before retirement.
Again, this comes from the guidelines set out in the National Consumer Credit Protection Act, 2009 (the NCCP Act), which is administered by ASIC, and in the Responsible Loan Amendments initiated by the APRA.
Solution: We recommend that you discuss your mortgage plans with your mortgage broker and determine how you will repay your loan before retirement, or pay for it from a pension fund, or by reducing the amount of your mortgage loan. workforce. Some non-bank lenders are more likely to accept a borrower closer to retirement age.
Foreign borrowers will have more difficulties
In February 2016, several cases of fraud were discovered, which eventually led the banks to discover billions of euros of fraudulent loans for borrowers with false documents of income.
As a result, many lenders have stopped granting loans to Australians living abroad, have imposed significant restrictions on their expatriate loan policy, or have asked for many more documents to verify their income.
This has negatively affected over a million Australians living abroad who often want to buy or refinance a property in Australia.
Foreign citizens are often unable to obtain a mortgage in Australia or pay a much higher interest rate than Australian citizens.
Solution: We are credit specialists to Australians living abroad and can help you apply to a lender who makes good sense.
How can a mortgage broker help?
Regulators have touched almost every step of the application and approval process.
This has considerably slowed down the process for the banks.
When mortgage brokers really shine, it’s the ability to talk to key decision-makers to speed things up when things slow down.
We also know exactly what banks are looking for in an app; we always ask you all your documents to avoid delays.
If necessary, we can help you apply to a non-bank lender who is not affected by the restrictions imposed by APRA.