Finance advice
Otto Dargan

New credit scoring system will catch out investors

By Otto Dargan

In March 2014 your credit file will include more information. What can you do to make sure you can still qualify for a mortgage?

Blogger: Otto Dargan, director, homeloanexperts.com.au 

A long time ago banks were reluctant to lend to people that they didn’t know. I mean, would you lend $500,000 to a stranger?

If you weren’t an existing customer of a bank they simply weren’t interested as they didn’t have the information they needed to make an accurate decision.

In modern times we all have a credit file which records the loans we have applied for and also if we have had any serious problems with repaying those debts.

Unlike in other countries, such as the USA, our credit files held by Veda Advantage don’t have any positive information. We only have negative information recorded such as being over 60 days late with a debt (known as a default), court judgements and bankruptcy history.

This is all about to change!

What does Veda Advantage now know about you?

The banks have already begun sending more information to Veda Advantage showing if you were on time with your repayments each and every month.

In the past if you were late every month, yet kept in contact with the bank and worked with them, then you may not have a default recorded on your file for a very long time. I have seen a client who was behind for over two years without a default ever being noted on his file!

In March 2014 Veda will begin including this repayment information in your credit file. Banks will not just see payment defaults, they will also see the repayment history for the last two years for all of your mortgages, personal loans, credit cards and some other types of credit.

This means that banks will know as much about you as they would for an existing customer.

How will investors be affected?

If you are well behaved and make every payment on time then this will be fantastic news! Your credit score will increase significantly. Your credit score is an automatic score given to your loan application when it is assessed by a bank, so your loan is more likely to be approved.

If you occasionally miss payments or are late then you will see a drop in your score. Banks will be able to see periods of hardship in the last two years or if you are a little slack with your payments.

They will also know exactly which debts you have. Some investors try to hide debts from their bank to increase their borrowing power. The banks are already very good at detecting this, however in the future they are going to know exactly which debts you have.

The good news is that some banks may no longer need statements for each of your debts when applying for a mortgage. If they can see your repayment history on your credit file then there is less of a need to see a statement. That’s great for anyone who has built a sizeable investment property portfolio.

What if you have defaults on your credit file already? If you have made all of your payments on time in the last two years then this may be great evidence that you had a problem in the past, yet you are now on your feet and you are a good borrower. It is possible that banks will be more likely to help you after this change.

Ultimately banks are going to rely more on credit scoring, and less on common sense and lending guidelines to assess loans.

What do you need to do to prepare?
To make sure that you are a winner from this change, take the following steps:
•    Make every repayment on time, every time
•    Set up direct debits for all of your debts and bill
•    Keep money on standby so you don’t miss payments when life throws you a curveball
•    Don’t apply for credit if you don’t need it (e.g. store cards / credit cards)

If you are concerned about your credit file you can ask your mortgage broker or you can obtain a copy from Veda Advantage. If you want to see how they have scored your file (known as VedaScore) then you will need to use their paid service.

 

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About the Blogger

Otto Dargan

Otto Dargan

Otto Dargan is a two-time winner of St George Bank's 'Australia’s Brightest Broker' competition and the managing director of specialist mortgage broker homeloanexperts.com.au

Email:
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
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A property investment plan years in the making
object(stdClass)#1203 (52) {
  ["id"]=>
  string(5) "18287"
  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
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  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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