Trying to get finance has always been a nerve-wracking process, but following the Royal Commission into Aussie banks, it has become even trickier.
The Commission had a big focus on irresponsible lending within the finance sector, with banks found to be providing unaffordable loans to potentially vulnerable people. As lax lending starts to be reined in, some might find it tougher than ever to get finance.
So, if you’re keen to get a home loan in 2019, here are some tips to improve your chances:
1. Go easy on the takeaway and Netflix
Ever heard of “the Netflix Test”? Neither had we, until recently. In the wake of the Royal Commission into banking, lenders are now asking potential borrowers about things like their Netflix subscriptions, their daily coffee habits, and even Uber Eats deliveries. If you’re spending too much on anything deemed trivial, you could be knocked back.
So, how do you manage this proactively? I’d recommend you look at the last three of four months worth of your debit or credit card statements – and highlight any expenses that stand out as “non-essential”. Takeaways, bars, restaurants, lunches, Uber, Uber eats, streaming subscriptions, coffee on the go… tally up the total for all of this spending. If it adds up to a sum you’re not comfortable with, consider easing up on your frivolous spending; it’s the best way to get your finances in shape, prior to approaching the bank for a home loan.
2. Get your finances in check
Once you’ve got your spending under control, you need to get your finances in check. This means having a look at any debts you have and checking out your credit report. Lenders aren’t particularly keen on approving mortgages to those who have lengthy or large credit card debts against their name, because it acts as a red flag that you aren’t able to live within your means – so, if you’re in debt, you may need to get some of this paid off as quickly as possible, speak to your broker about this for advice on what to do.
Take a look at your credit report. You’re eligible for one free credit report per year from Equifax, or you can reach out to national credit reporting agencies like Dun & Bradstreet, Experian or Get Credit Score. Your credit report will list any previous credit cards or loans, including defaults and bankruptcies.
3. Understand interest rates
The RBA currently has interest rates at a record low. However, they aren’t likely to stay that way forever, and it’s important to factor that into your potential finance as well. Interest rates on home loans are around 3.5-4% today, but historically, they are closer to the 6-7% range. Banks will automatically assess your home loan with a higher interest rate, and if you can’t afford the repayments at this higher level, they’re more likely to deny your loan application. Moral of the story? By watching your spending and increasing your savings, you will be better positioned to cope financially if and when the rates do rise.
There may be a newer, tighter lending regime to navigate, but that doesn’t mean your dreams of owning a property are over. On the plus side, you can feel confident that any home loan you apply for won’t be approved beyond your means, meaning you’ll have a much lower chance of struggling up Mortgage Mountain. Get educated and make smart money decisions, and you’ll be well on your way to securing that all-important ‘yes’ from the bank.
Louisa Sanghera is a Finance Broker for Residential Mortgages, Vehicle and Asset Finance, Commercial Lending and Budgeting and Cashflow Coaching with Zippy Financial.
She has gained more than 30 years in the Banking and Finance Industry, and since founding Zippy Financial, has become a multi award-nominated expert in the field of finance featuring regularly in industry press and speaking at finance and investment seminars across the country.