The Situation: Borrowing Money in 2019
So you have seen media reports that borrowing money today is harder than it has ever been. Why are the banks making it so difficult? What has changed to cause a “tightening”? Can I still get a loan?
Since 2014 the Australian Prudential Regulation Authority (APRA) has been introducing measures for the banks to follow where they see a potential issue. These have resulted in a change in the appetite in the more “risky” investment loans that they will grant and the cost of these to you, the customer. In effect, APRA’s measures have contributed to a slowing down of growth in the investment lending market. For those who are using equity from existing properties, have saved healthy deposits and/or choose to make principal and interest repayments on their investment loans, the impact has been minimal.
In 2017 the Federal Government announced a Royal Commission into the banking industry. Another set of banking rules changed.
And, the property market in Sydney and Melbourne has slowed.
In essence that this means for you is:
Your living expenses will be scrutinised and compared to benchmarks. At least 3 months’ history needs to be provided to confirm your regular spending patterns, regular direct debits and to uncover any liabilities that you may not have disclosed or realised are liabilities including ZIP Pay and AfterPay. Be prepared to answer lots of questions about your transactions. Our clients are often having to explain parking fines!
You may be assessed at a higher interest rate and loan repayment than you were in the past. This will be across all your debts. Most lenders are looking at your loans as if the interest rates were 7.25% and needed to be repaid in full over 25 years or the remaining loan term if that’s shorter.
It may be more beneficial to begin repaying your investment loans from day one as the interest rates for Interest Only facilities may be higher. A conversation with your accountant before getting a loan is more important than ever before.
Even if you pay your credit cards in full each month the limits and a minimum payment (up to 4% of the limit) have to be included in the banks affordability assessments. Keep your limits to a minimum.
You will need to provide more documents to your broker or lender. The checklists we have to follow are getting longer and longer and longer.
If you are over 40 years old be prepared to discuss your retirement plans and exit strategy for the loan. Copies of superannuation statements and details about how you will repay the loan in full will be needed.
Your existing properties may not be valued at what you think they are worth. With a slow down in the market comes nervous valuers and more conservative property value estimates.
All of these changes can mean that the processing of your loan application will take longer than it did in the past.
Pre-approvals are your friend. Now is the time to speak with us about your plans. We will work with you to get a solid pre-approval in place to ensure that you can fulfil your property dreams in 2019.