Don’t be discouraged. Sure, tightened lending means home loans are becoming harder for some to get, but it’s not all bad news.
That’s because there’s also reduced competition from investors, housing prices are falling, and clearance rates are too, making it much more of a buyer’s market than in years gone by.
So let’s take a look at a few simple steps you can take to improve your chances of obtaining finance in the tighter lending environment. Armed with these tips you could be better equipped to take advantage of the weakened housing market.
Tightened lending requirements
The lending practices of Australia’s biggest banks have been tightening in recent years, firstly with the Australian Prudential Regulation Authority (APRA) moving in March 2017 to reduce the proportion of new interest-only residential mortgage lending.
Although APRA lifted that supervisory benchmark in December last year, the glaring spotlight of the Royal Commission into banking has ensured that lending conditions have remained tight.
Improve your chances of approval
Review your credit report
First things first: find out if a less than glowing credit rating is hindering your mortgage application.
You can request a free credit report from one of three national credit reporting bodies, which are listed on this Australian government website.i
If you find errors in your report, the Australian Retail Credit Association (ARCA) has this guide to getting them corrected.ii ARCA has also developed these tips for improving your credit score.iii
Proof of genuine savings
Lenders consider “genuine savings” to be funds that you’ve accumulated over a period of time, including:
- term deposits, shares or managed funds that you’ve held for three months;
- savings that you’ve held or accumulated over three months;
- rental history for the past six months;
- salary sacrificing through the First Home Super Saver scheme; and
- additional repayments into a car loan or personal loan.
Funds that lenders won’t consider as genuine savings include cash gifts, inheritance, tax refunds, funds from selling your car or other assets, the First Home Owner Grant and borrowed funds.
Set a budget
In the tightened lending environment, banks are paying closer attention to your spending habits.
It’s, therefore, more important than ever to set a realistic budget and stick to it.
This can not only help you provide proof of genuine savings, but it can also demonstrate to lenders that you’ll be able to make ongoing repayments.
Reduce your other debts
Lenders will be wary of extending more credit if you’ve got a bunch of credit card debts, personal loans, or car loans kicking around. Even evidence of an AfterPay purchase can be detrimental to your chances.
So take steps now to reduce any other debts. That may mean paying off the debt with the highest interest rate first, giving yourself a sense of achievement by paying off the smallest debt first, refinancing or consolidating your debt.
For a better understanding of how tightened lending will impact your financial goals, you can call us as we’re here to help.