RBA gives APRA’s use of macro tools a tick of approval
Ahead of an expected move to impose tougher lending rules on the banks, the Reserve Bank has looked into previous attemp...
If you want to find out quickly if you are outside of an institution’s lending criteria, ask these two questions, which will help you figure out if you’ve found the perfect match or if you’re just wasting time jumping through hoops that will get you nowhere.
You need to check if your preferred lender is willing to accept property that you own as security.
Some borrowers are surprisingly coy about this and only reveal that they have made an offer after securing conditional approval or progressing a long way through the application process.
This is only going to hurt you because, if the institution doesn’t lend against your type of property, you are wasting your time.
Typically, lenders are less likely to lend against properties that they think will be hard to resell.
Some examples of properties perceived as risky include homes built near high-voltage power lines, homes near a petrol station, homes on acreage, and homes built in remote areas or on dirt roads.
Quite a few lenders will also rule out or restrict high-rise apartments, especially in areas with a lot of development. If you own or plan to buy one of these types of property, your first objective is to find a lender who lends against those properties.
A lender needs to be confident that you can service your loan, especially in this era of heightened concern about responsible lending.
Even if you earn more than you spend, from a lender’s perspective your ability to repay also depends on the reliability of your income.
Some prospective borrowers are caught out because they think that all income is equal, but that isn’t true for a lender.
The most reliable type of income is wages from a full-time job that you have held for an extended period.
Many casual employees who work full-time hours consider themselves – quite reasonably – to be in full-time employment, but to a lender it may not be considered the same because their hours could easily be cut back, making it impossible to service the loan.
If you are in this situation, it is important to find out your lender’s policy early in the discussion so you aren’t disappointed later.
Also, be sure to ask the lender’s policy on length of time in the job. I have seen cases where borrowers have been given conditional approval for a loan, only to quit their job to move to a new employer during the application process!
This prevents them getting final approval because they have no longer been in their current job for an extended period.
If you ask these questions upfront, you should avoid the most common pitfalls that trip up borrowers.