With at least 39 apartment developments currently under construction in the Perth metropolitan area and more in the pipeline, it’s becoming more apparent that home owners and investors alike are seeking the apartment lifestyle for their next purchase.
It’s not unusual for a sizable percentage of those buyers to be scrambling at the last minute to get their finance approved or have to walk away due to not being able to obtain finance altogether, with an average fall over rate sitting at about 10% in this current market.
While there’s a degree of uncertainty in what anyone’s end position will be over the 18 months to two years a standard off-the-plan build takes, buyers must also go into a purchase being fully armed with what their own responsibilities are, from when they sign a contract to when it settles.
It’s imperative that a buyer is fully aware of what their borrowing capacity is and what it will be at settlement, factoring in a buffer for the possibility of potential rate rises. While lenders do load their rate for the purpose of servicing to factor in possible rate movements, there still is no guarantee that this benchmark will still be the same come settlement time, or that a buyer’s capacity to borrow will remain the same as when the contract was signed.
A good reminder of this was the major changes rolled out by APRA in the middle of 2015 restricting investment lending through across the board investment rate hikes. These changes impacted those investors leveraged most heavily, squeezing out many who were already close to their limit. This was a change nobody could foresee and was a game changer for some investors who could not afford for the goal posts to be moved.
Changes in a buyer’s personal circumstance is perhaps the most avoidable yet one of the most common reasons for a settlement to fall through. When making an off-the-plan purchase you are almost making a solemn vow to ensure that your current position at least remains the same if not improves during the period to settlement.
It can be the most arbitrary things that can be the most damaging. For instance, it is astonishing to know that many purchasers will take on significant additional personal debt such as car loans and credit cards without considering what impact this will have to their borrowing capacity. But it’s not only personal debt that can impact, self employed buyers acquiring more business debts can also come unstuck as a lender will factor in these liabilities also. Employment is a major factor, if not the most important factor, in getting a loan. A lender will take into consideration more than if you simply have an income or not, they want to see a stable history. The biggest deal breaker can be your employment status, particularly if you move from a PAYG job to becoming self employed. Most banks will need two year’s financials if you are self employed. One or two lenders may accept only one year’s financials, but they will also need to have the right policy for your individual circumstance.
Sometimes life does get in the way and there are certain changes that you don’t foresee, perhaps in the form of an unexpected child, a job loss or a relationship breakdown. In the unlikely event that a major life upheaval does present itself, then it’s crucial that a mortgage broker is engaged to fully assess what the likely outcome will be from a settlement perspective. Some fall overs can be prevented if purchasers choose to remain fully transparent with their broker and seller as the proverbial “ostrich burying his head in the sand” has never proven to be a successful strategy in mitigating a settlement falling over.
When buying off-the-plan its always recommended that an off-the-plan specialist broker is engaged right from the outset of the purchase, even before the contract has ever been put in front of a buyer. Being fully armed with the potential pitfalls in obtaining finance is crucial to ensure a successful settlement and buyers must also recognise their own responsibilities in making sure this happens.
If you are buying off-the-plan it pays to speak to an off-the-plan lending guru like the brokers at Blackburne Mortgage Broking and their second to none team. Contact us via the link or call +61 8 9429 5777 and ask to speak to Paul Prindiville, Team Leader.