Several setbacks recorded this year were linked to stricter lending criteria. These include declining new home approvals, new home sales and real estate prices.
Your investment property recently discussed with Philippe Brach, founder and CEO of Multifocus Properties & Finance, the difficult credit situation.
"Yes, it is certainly harder to borrow now," he said.
According to Brach, the tightening of loans began more than two years ago, when APRA introduced "speed bumps" to slow down investor lending. This led to an increase in interest rates, which slowed the number of investor requests. In addition, banks have been forced to improve their services.
"I have modeled the borrowing capacity of some of our existing investor clients, comparing their position three years ago and using the same numbers today in today's calculators." management of lenders services. The result has been that the maintenance facility has been reduced by 30 to 50 percent compared to three years ago, "he said.
The Royal Commission on Misconduct in the Banking, Superannuation and Financial Services Sectors Called on the Financial Sector for its Lax Practices, Such as Careful Non-Verification of Living Expenses . This decision is also one of the reasons why it has become more difficult for borrowers to obtain a loan. Lenders now require borrowers to list each expense, whether discretionary or not.
"I find it silly to include restaurant bills, hobbies, vacations, etc., when borrowers can reduce them if they are in financial trouble," Brach said. "Most people will spend more for discretionary items depending on the increase in their income. The net result is therefore a lower borrowing capacity for all. Given that the default rates of loans in Australia are among the lowest of all OECD countries, it seems that the tightening is somewhat exaggerated. "
Brach said the banks were so paranoid about making mistakes that they were almost paralyzed in the inaction.
"The processing of loan applications takes weeks longer than before, with the evaluators constantly asking more questions each time you answer the previous ones, and frankly, many of them are pedantic and useless. It's almost like they're looking for reasons for not granting you a loan, "he said.
Brach said that to obtain financing in the current context, investors must control their spending and, overall, spend less to improve their borrowing capacity.
"It's a silly situation: if you want a loan, you may have to dive seriously and be miserable by reducing the number of entertainment, recreation and restaurants! The good news is that once you have approved your loan, you can go back to the madness! ", He declared.
Is there a "good time" for funding? Brach said the right time to get a loan was three years ago. However, since it is not possible to go back in time, the timing is the best because the situation may become more tight when the CR issues its report in February 2019.
"I think the current lending environment will last a while. Investors just need to navigate the situation. If a borrower is limited in service, then he must choose a way of life to improve this service, "he said.
These criteria will probably be relaxed in the future, but Brach says that they will never come back to the old reference tables of the past. The slowdown will occur at some point as banks must increase their volumes to maintain their profits and market share.
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