There’s been plenty of press about the tighter finance environment in the wake of the Banking Royal Commission and restrictive moves by APRA.
Rather than relying on sensationalist tales with clickable headlines, Propertyology thought it best to find our own reliable source and unearth the truth. Someone who day-in-day-out deals with helping investors secure finance – and we did.
Peter Trethowan is a director at Astute Financial at Wilston. He has 20 years expertise in securing dollars for clients who are looking to purchase real estate.
Peter’s company has over 30 lenders on their panel and he’s tackled all sorts of dramas in the residential finance world.
Peter told us there are few challenges at the moment, but they’ve been overstated.
“While the perception in the market place suggests it is, it’s not a lot harder than it has been in the past.”
He explained clients just need to apply a bit more diligence and make a little extra effort, but borrowers with a professional on their team shouldn’t worry unduly.
“There’s more paperwork on what you have to provide, but once you provide that then it’s a matter of your broker working out which lender is going to be suitable for your own personal situation.”
Peter gave us five tips for smoothing the path and securing a ‘yes’ for your next loan application.
1. Pay on time
Peter said staying on top of your current loans is a critical first step for borrowers. Pay every loan payment on or before the due date.
“The majority of lenders require statements on all your existing loans to ensure you do have excellent conduct on these – including credit cards, personal loans and home loans.
“You can’t just say, ‘I won’t make the payment on this credit card this month,’ anymore because the banks will catch you out – they’ll see that and if you’ve got a blemish on your credit cards or missed payment, it does make it harder to obtain the finance for your next purchase.”
He said it’s all part of showing you’re a responsible borrower and capable of meeting the current debts you have in place before you take on further commitments.
“It’s pretty simple – if you’re wanting to borrow, you’ve got to show to a bank that you’re capable… and one simple move is to ensure that your current finances are up to date before you apply for anything else.”
“Just being organised and being up to date will put you in good stead”
2. Stay on top of your budget
People are often surprised by the fact that good investment properties in locations with exciting drivers often cost as little as $2,000 per year to hold. Refer here.
Peter said loan applications have always considered your income versus expenses, but now banks want to also see a detailed household budget.
He does admit that lenders have become a little more rigorous in their requests, and now seek extra details via documentation.
“Lenders also want access to 30-day statements on your transaction accounts.”
He said this is again why it pays to stay on top of credit card repayments and keep within your limits.
“If you have a credit card and your limit is $10,000, you must ensure you’re always under that limit.
“Certain lenders will require credit card statements and if there are arrears or missed payments, then that is a factor. Something as minor as a credit card being over the limit can put an application ‘on hold’ and potentially declined.”
On the income side of the ledger, Peter said not much has changed. Banks still require pay slips and previous tax returns.
“The bank wants to see a budget with your months expenses – grocery, school fees etc. They want to see you’re a suitable risk and they need to put the amounts around your spending habits into their servicing calculators to ensure you are living within your own means.”
3. Allow more time
While Sydney and Melbourne are currently experiencing market downturns, more than 50 per cent of locations across Australia are producing price growth [refer this interactive map].
While Peter said borrowers shouldn’t be shy of the finance process, he is recommending extra time for approval be factored into any purchase negotiations.
“In Queensland, for example, you usually have a 14-day finance day period. We’re now suggesting you may want to get 21 days for finance if you haven’t seen a bank or broker beforehand.”
“We still believe if you do the application correctly the first time – have all the necessary documentation, the credit check has been done – there’s no reason why the loan shouldn’t be approved in a timely manner.”
Another way to be one step ahead is to do a pre-approval before you start the search for a property.
Propertyology’s policy is that all clients need to have had finance pre-approved before their buyer’s agents commence their services.
“It gives the client comfort that the loan has been approved and gives the selling agent comfort that the buyer is organised. Preapprovals are usually valid for three to six months, so it gives everyone a bit of peace of mind going into the next stage.”
4. Brokers help
While Peter would be the first to admit this sounds a little self-promotional, he said there’s no denying mortgage brokers are worth their weight in the current finance landscape.
“It’s where a good, experienced broker can make a difference… someone whose been through the highs and lows, good times and bad times and understands credit applications and all the lender’s policies.”
“The broker has to have an understanding of what the client’s needs are and whether that’s going to fit the lender’s calculators.”
5. Keep a positive mind set
Peter said despite some trepidation by borrowers to make an application for finance, they shouldn’t be worried because, in the end, the bank wants to lend you money – it’s their business model after all and their shareholders are looking for a profit.
“I don’t think people should be scared.”
He said you just need to plan a bit more in advance so you’ve got clean numbers for the lender.
“We provide investors with guidance. We let them know what they need to do over the coming three or six months to be in a position to get finance approved for an investment property. It could be as simple as clearing that credit card or paying that personal loan out so it doesn’t impact on your application. It might also be a matter of being in a job for another three months if you’re casual or part time.”
Propertyology Managing Director, Simon Pressley, also added that an important attribute of all good investors was having the right mindset. The ability to understand market fundamentals, to objectively look at each market, and to ignore noise.
“If you’re going to do borrow, you’ve got to do it right. It’s a matter of being organised and then working with that broker to do exactly what they believe you should be doing to enable the next phase – the approval.”
Peter believes when it’s all said and done, just remember – the lender’s business relies on approving loans. In fact, he’s welcomed some of the changes as they’re helping educate borrowers about their limitations.
“I just think the Royal Commission has added some challenges and that’s probably not a bad thing. It’s probably made people understand their (own) finances better than ever.”
“Banks are still happy to lend, and for the right people – the ones with good equity and on reasonable income, the ones that have shown they can save for a deposit – there’s finance galore out there for them. These people won’t have any problems getting approved.”