CANE Financial featured in The Weekend Australian
Ever wonder why it is harder these days to borrow money from banks?
Don’t blame your mortgage broker, it’s more than likely due to the banking regulator APRA (the prudential regulator) deciding to tighten controls around lending to property owners and investors.
In an attempt to take some of heat out of the property market, APRA imposed a raft of additional regulatory requirements over the banks, including extra scrutiny on loans over 80 per cent of the property value, not growing loan books by more than 10 per cent and limiting the number of interest-only loans offered to property owners and investors.
Craig Forman, founder and director of CANE Financial who specialise in matching time-poor professionals with the right lender says “ASIC (the consumer regulator) and APRA are closely watching banks to which need to maintain responsible lending standards after recent changes.
“No surprise then that mainstream lenders have tightened on serviceability calculations when assessing loan applications. In turn this has resulted in fewer loans being approved with lower lending limits particularly for investors who wish to use interest-only packages”.
Even though the banks are being presented with creditworthy customers, their hands are increasingly being tied by APRA lending limits that apply to the bank as a whole, opposed to issues with the customer.
Endre Kollo, director at property developer KSI, says “We have young families who want to purchase newly constructed homes but can’t do it due to their preapprovals not being renewed from the banks that have been forced to tighten their lending policies”.
“It’s disappointing as they have good incomes, stable jobs and decent deposits but they are still turned away”.
Dealing with squeeze
So what can an investor do next if the bank rejects your loan application or offers substantially less attractive terms?
Loans are highly portable these days which means as the consumer you are in a good position to vote with your feet if you’re not happy. Craig Forman from CANE Financial top tips are:
- It’s not just about rates in the current market as loan products are far from homogeneous. Banks can vary widely on features such as lending limits, interest-only term or principal and interest, availability of offset accounts and maximum loan terms. These are just a few of the non-interest rate related features that purchases can use to distinguish between banks.
- Some banks will help cover all refinancing costs such as mortgage discharge fees and offer other financial incentives, which is quite attractive. You need to know the right questions to ask and which banks to go to so you can take advantage of these offers.
- Review your budget to see if there is any discretionary spending you can reduce to improve your lending position with the bank.
- Be realistic about what you can afford as interest rates may increase over the next five years—some banks are now doing forecast calculations on mortgage rates as high as 8 per cent.
- Find out which lenders best suit your needs. For example, some lenders count 100 per cent of overtime, bonuses and commissions towards servicing while others assess serviceability based on actual monthly loan repayments opposed to total loan size (which may include a large undrawn or offset component).
The key takeout from Forman’s tips is if you are using a mortgage broker leverage their skills and relationships to match you with the right bank from the outset.
Not only this, but a good mortgage broker should have access to non-bank lenders and will have special accreditation with banks for quicker turnaround times and extra consideration for non-standard deals.
Forman says to be careful about how many applications you make. “If you apply with a few banks and get knocked back, it can quickly turn into a rapid downward spiral whereby your credit file is marked with enquiries and each subsequent application is less likely to be successful until you get to the point where you have to stop and let the credit file settle before applying again”.
If history is any guide, Government regulators will eventually relax banking regulations to encourage lending to stimulate the property market when it softens. But this softening of policy cannot be expected in the near term.
With real estate growth in Sydney and Melbourne sitting at over double the long-term average growth rates over the past four years, don’t expect improvement in loan approvals anytime soon.
Think of each bank as a key on a large ring of keys. Only one key will unlock the door and allow you to purchase property and you only have one, at most two shots, to get it right, so getting advice on which key to use and get in is crucial. The best advice at the moment – pick your bank wisely, but also do your research on who you engage and trust as your mortgage broker. It can mean the difference between getting the property or not.
James Gerrard is the principal and director of the independently owned Sydney financial planning firm FinancialAdvisor.com.au