It is undeniably more difficult to get a loan now than it was a few years ago. Indeed, several factors combine to create a more restrictive credit environment today.
"Over the past year, in response to Royal Commission and government regulations, we have seen major lenders tighten their lending standards due to a loss of appetite for risk. This meant that many borrowers who could easily have secured financing before suddenly had their applications rejected by the majors, "explains Royden D'Vaz, Sales and Marketing Manager at Bluestone.
"These borrowers formed the new" near-privileged "market: borrowers with a clear credit history but for various reasons do not meet the new credit thresholds. Many of these borrowers are independent investors or residential real estate investors with complicated cash flows. "
Since the convergence of factors has made it more difficult for investors to access credit on the current mortgage market, it could be small institutions and non-bank lenders that allow homeowners to continue to build their portfolio.
Amanda James, head of dealer distribution at Adelaide Bank, adds that regulators do not limit investor and interest-only lending that has bothered investors over the past two years, but more. the big banks in terms of tightening their loan application criteria.
"Lenders are paying more and more attention to the ability of borrowers to repay their loans, regulators worrying that lenders should not just be concerned about the borrower's service capacity. loan, but also It is expected that the debt will be fully repaid and submit to a further resistance test this ability, "says James.
Since lifestyles and consumption habits have changed considerably over the years, and families in particular now have a longer list of expenses, many positions are now taken into account. Maybe 10 years ago, they were maybe even more considered standard.
"Expenditures such as the use of multiple mobile phones, the use of data, Netflix, Spotify, takeaway and home meals, holidays abroad and the rise of Childcare and private education costs add up – and salary increases have been minimal, "says James.
"Utilities expenditures such as electricity and gas also put pressure on household disposable income. We are therefore required to ensure that these expenses, once all taken into account, do not constitute an excessive financial constraint for borrowers now or if there is a slowdown in the economy.
"As we have seen, real estate prices do not magically and automatically increase, and the pressure on rent yields in capitals has also been reduced, so all of this has to be done. be duly taken into account at the time of transition. application. "
Due to the additional burden that banks must do to assess claims, many lenders request additional information, which may also affect the processing time of claims. (See 'The Cost of Loan Processing Times', page 28.)
That said, even though banks have tightened their loan application criteria, this does not mean that all hope is lost. Dr. Vaz suggests that loan seekers facing more complex situations may need to resort to non-bank companies to find financial solutions, as these lenders are more flexible and able to assess claims on a case-by-case basis. rather than reject them. on restrictive credit scorecards.
"The rejection of a bank can be disheartening and extremely stressful, especially if the settlement date approaches. But there are options, even in this narrowing credit market, "says D'Vaz.
"When you talk to a non-bank bank, borrowers should remember that we do not process credit scorecards, but evaluate each application individually. It is really important that we have a complete picture of your financial situation. You must therefore ensure that you disclose all your debts and liabilities and provide proof of your income and expenses, such as personal or professional bank statements. "
Even though you usually manage your loan applications personally, it's time to contact a broker specializing in loans to investors, he adds.
"They may be able to guide borrowers to products and solutions that they might not otherwise be aware of and help build a complete application so that the lender can take a decision. "
Although many borrowers are in a new territory, this is not new for non-bank lenders; they have long been finding financing solutions for investors who do not comply with the four big criteria.
"We are responding to those who have been seeking an alternative to traditional solutions for over two decades," said Heidi Armstrong, Liberty Consumer Advocate.
"Many investors want to minimize their contributions in cash or shares when buying an investment property. Non-bank lenders can still help investors who want to minimize cash or equity for purchase … Lenders like us have become more relevant. In recent years, offering useful solutions in all areas of credit and being able to approve transactions that banks can not accept is not new to us. "
The cost of loan processing delays
When the marketing manager, Marcus W, last year bought a two bedroom apartment on the Gold Coast, he made sure that all his financial problems followed one another before making an offer.
"I did what I needed and went to see a broker to get the best loan possible. Ironically, the best asset turned out to be my own bank, which was one of the big four. But the broker did all the work, so I continued to work with them to get the funds, "he says.
Marcus negotiated the purchase of an apartment for 10 days before setting a $ 315,000 purchase price. Borrowing 90% with a 10% cash deposit, he was charged a mortgage insurance premium (LMI) of $ 5,000 to pay, which his broker assured him could be capitalized on the loan. .
Despite obtaining prior approval before submitting his offer in writing, he stated that the process of obtaining loan approval was lengthy and laborious.
"There were so many checks and balances. For example, I provided a rent statement for my existing investment property, but that was not enough; they needed to see a copy of the lease too. And even though I was already an NAB client for almost 20 years, I had to physically go to a branch to prove my identity because I was applying through a broker. "
The frustrations continued throughout the four-week settlement period and it was not until later to obtain unconditional approval because the bank was simply too well backed up.
"The impression my broker gave me was that my loan was not a top priority for the bank because it was so low," Marcus said.
"Every day, the real estate agent called me to lobby for unconditional approval, but I could not do anything!"
Finally, the approval arrived with 10 days late. The settlement was to take place two weeks later, but it was once again delayed by the bank, which cost Marcus a nice penny.
"We arranged with a delay of about 10 to 10 days, and the seller ended up asking me for penalty interest of almost $ 300. Then, two days before the settlement, my broker sent me an email saying, "Sorry! NAB will not capitalize on IMT. You will have to find the money to pay for it. I was so emptied. All this experience was really demotivating. "
Fortunately, the current renter of the building remained on site and even accepted a rent increase in December 2018, so that the investment has gone smoothly since. Getting funds in the first place was a painful process – and a process that Marcus does not want to repeat any time soon.
"I'm going to wait to buy another investment property until I've saved a 20% deposit, just because I do not want to jump through all those obstacles. It's really hard to be an investor today, but in 20 years, when I live on rental income, I'll feel like it was worth it! "
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