Two simple ways to become ‘more attractive’ to lenders

In fact, over the next four to six months, she expects the changes to filter through, ultimately improving most people’s borrowing capacity.

“I think that there’s a couple of areas that are really going to change, like borrowing capacity for a lot of borrowers in the future,” Ms Schulze highlighted.

“Potentially, [for] people that have struggled in the last 12 months to access the finance they’re looking for to get their investment property or to refinance their loans to better rates, these loosening might actually give them what they need to boost their borrowing capacity to a point where they can actually do what they want to do.”

Still, despite the improvements in the credit environment, the mortgage broker encouraged investors to be wary of their finances in order to ultimately maximise the opportunities in the market.

Amid the easement of rules on assessing loan serviceability, banks and lenders will continue the crackdown on living expenses for mortgage applications, which may keep credit conditions tight for some investors and home buyers.

According to Ms Schulze, expenditures over the last three to six months may come back to bite prospective borrowers come application time.

She explained: “A lot of people still are struggling to realise that expenditure that they’ve been making for the last three to six months is really hurting them when they go and do a loan application because many banks are reviewing that with a fine-tooth comb and saying, ‘You’ve spent $5,000, on average per month for the last three to six months, so that’s what we’re going to use for your living expenses’.”

“The way that lending is now, the money that you spend can really bite you.”

Becoming a good borrower

Fortunately, there are simple ways for prospective borrowers to make themselves “more attractive” to lenders today, including the reassessment of living expenses and the protection of credit rating, the mortgage broker said.

1. Reduce living expenses

First and foremost, investors and home buyers looking to borrow for a property purchase must ensure that their living expenses are reasonable.

Leading up to a loan application, it is encouraged to minimise living expenses in order to improve one’s borrowing capacity, according to Ms Schulze.

“The first and most obvious thing to do is to try and reduce your living expenses and keep them to a minimum as much as you can, because, right now, we’re in a situation where the banks will take your actual living expenses as demonstrated historically,” she said.

“Cutting back a little will help your lower living expense rate, which will be entered into the bank’s calculator when they determine your ability to afford the loan.”

2. Protect credit rating

Apart from paying attention to living expenses, investors are also strongly advised to protect their credit rating, which has become “more important than ever before” in today’s credit environment, Ms Schulze said.

According to the mortgage broker: “The reality is 99 per cent of the banks are now using a computer to assess an application before a human sees it. That computer is assessing it based on your credit score, and, moving forward, we’re going to have a situation where banks can see a lot more of your personal data like late payments.”

Even if the prospective borrower has significant savings, thus able to afford to meet all of their obligations, one instance of forgetting to pay a bill can hurt their credit rating and, ultimately, their borrowing capacity.

“It’s a matter of just making sure that you are meeting your obligations on time, that you are paying everything on time so that you’re not impacting your credit score,” she said.

Loan applications, credit card applications and transactions and personal finance applications may also impact one’s credit rating, according to Ms Schulze.

“Limit your credit applications and try to avoid things like payday lenders as well,” she said.

“Every time you apply for any form of credit, even if you’re doing a rent-to-buy thing or an interest rate terms on a purchase of a lounge or a fridge or something, those things will hurt your credit rating… Personal finance applications, interest-free stuff and your credit card applications, especially if there’s multiple of them, they can also hurt your credit rating substantially.”

Mortgage brokers

Moving forward, Ms Schulze believes that, as banks gain more access to information, risk-based pricing on home loan application will begin to be prevalent across markets — that is, people with good credit scores will have access to cheaper interest rates while people with poor credit scores will only have access to more expensive interest rates.

Moreover, she predicts the narrowing of the gap between the interest rates for investment loans and home loans as official cash rate continues to be cut.

While this information is highly significant to prospective borrowers for either investment properties or owner-occupied homes, it could be hard to source, process and understand without the help of the right professionals.

Mortgage brokers dedicate their time and expertise on identifying market indicators that suggest a shift in property markets, which may ultimately impact the wealth creation journeys of their clients.

“What your mortgage broker needs to be doing is to try and identify what the banks will pick up on, what problems there could be, and then find the right lender that’s going to ensure that that application goes through as smoothly as possible,” Ms Schulze said.

“You need to find a broker that is actually asking you all those questions and pulling your living expenses to pieces before you even choose the lender and decide on any loan product.”

Apart from helping prospective borrowers sort out their finances, good mortgage brokers also help them find a lender that will fit their personal and financial requirements with a “99.9 per cent” success rate, according to her.

“The more times you apply for credit, the more red flags there will be about your creditworthiness, so your broker should not be doing that. An application should not be submitted with lender unless you’re 99.9 per cent sure it’s going to get approved. A good mortgage broker will actually be able to determine whether that application’s going to get approved before they submit it,” she said.

“We wouldn’t ever submit alone, unless we were 99.9 per cent confident that it was going to get approved because you can’t take that risk with a person’s credit score. It’s too much of a risk for them because, I think, credit score is a hard thing to fix once it’s broken.”

Tune in to Marissa Schulze’s episode on The Smart Property Investment Show to find out how to maximise wealth creation opportunities across property markets in light of the changing credit environment.