2018 has been an interesting year in both the lending market and the real estate market in general. For the first time, in many years we have seen a consistent contraction to property prices in many major cities which is easing pressures for new home buyers who are wanting to get into the market.

However, there have also been many changes that have been made by banks and government that new buyers will need to be mindful of as they begin their journey to home ownership.

It is fair to say, that in past years it was much easier to secure approval for a loan. Some would say, too easy. Due to many economic factors, banks have increased the number, and severity of requirements for anyone wishing to take out a loan. The changes have been made largely to protect Australia’s greater economic stability and minimise the number of defaulted loans and bankruptcies that were being seen in previous years.

Whilst these changes are necessary to avoid a rehash of previous global financial disasters, buyers will need to be more prepared than ever when wanting to approach their banks, and the assistance of a professional mortgage broker may be more important than ever.

You will Need More Documentation

We are now seeing an increase in the overall levels of documentation that banks and lenders are requiring as a part of the application process. Where in previous years, some customers were able to get away with supplying minimal information and many banks did not do their due diligence in validating what was one their application forms.

These days, things are different. Banks are requiring a lot more information, including identification documents, proof of income, tax return verifications, declarations by accountants, and they are checking every detail.

If you are wanting to expedite your application and approval process, make sure you have all relevant documentation ready to go. For people who are married, or who have changed any part of their name, make sure that you have the correct documentation with the same legal name, as many times even minor differences in names can lead to a rejection.

You Will be Asked More Questions

Banks are now diving deeper into your lifestyle and spending habits to assess your ability to service your requested principal amount. It is imperative that you are 100% honest and upfront with your liabilities and other key information.

If inconsistencies or incorrect information is discovered on an application, this can lead to instant rejection which will hit your credit score and make it even more difficult for you to apply with other lenders.  

If you enlist the help of an experienced mortgage broker, they will be able to help you clearly document your liabilities from your source documentation and ensure that everything that will be scrutinised is included in your application upfront.

You Will Need to Prove Where Your Money Goes

Lenders are now requiring multiple periods of bank statements to be able to get a true sense of both your income and expenditure patterns.

Make no mistake that any undisclosed regular expenditures will be questioned, even if there are no specific questions about it in the application form.

Things like gym memberships or hire purchase agreements need to be disclosed as an ongoing liability as they are transactions that repeat in your bank statements month by month.

Your Borrowing Power Will Almost Certainly Be Lower

APRA and the Government have made changes on the guidance for banks in the way they assess a customer’s borrowing power. This has been one of the biggest changes impacting the market as both new home buyers and investors no longer have the luxury what was considered dangerously high loan amounts compared to their income.

Buyers are now faced with one of two choices, purchasing properties with lower prices, or having a higher deposit. In any case, most lenders will not allow loan amounts go beyond 6x annual income. Buyers should be aware of this and discuss the impacts with their mortgage broker. The truth here is, if buyers are wanting to invest in luxury properties, they will need to have a large portion of purchase price covered by deposit.

In Summary

Whilst these changes have made it more difficult for buyers to secure their first loan, or ongoing investment loans, they were necessary to protect both buyers and institutions from repeat crashes that have been witnessed in previous years.

These changes have been put in place to ensure that every application undergoes due diligence, and that the applicants will be able to afford both the current repayment plans, as well as a contingency should interest rates rise in the future.

By understanding these changes and speaking with a mortgage broker early in the process you will be able to ensure that you have the necessary documentation, spending patterns and borrowing power to set you up for success.