The current lending environment in Australia is arguably as restrictive as its ever been.
After the GFC, lending standards around the world changed, making it far tougher to get a home loan than it has ever been before.
At the same time, we’ve also seen APRA in Australia, clamp down on easy lending in a bid to cool the strong house price growth that we saw in both Sydney and Melbourne up until 2017.
Prior to APRA winding back their macroprudential measures, the housing market was in a far more cautious state then what we have seen in the past five years. While their standards are a little lower than they were only 12 months ago, they are clearly playing a big role in what banks and other lenders are willing to offer borrowers.
What this is telling us is that in the current credit environment, borrowing power is an incredibly valuable commodity.
We are routinely seeing investors with a substantial net worth, not being able to obtain investment loans, based on their inability to service the debt. Basically, they don’t have sufficient taxable income to pay the principal & interest repayments, so banks are telling them that they can’t borrow any more money despite their significant assets.
For investors, this is a big issue. But at the same time, there are some things you can do to make sure you are in a good place financially so you can maximise your borrowing capacity and be in a position to capitalise on potential opportunities.
The days are long gone, where wannabe borrowers had to walk into one of the big four banks to try and convince a bank manager to lend to them.
These days, there is a big push away from the major banks and there are dozens of smaller lenders that might be a perfect fit for your situation.
In fact, many of the smaller lenders work with specific niches and understand different types of occupations or even businesses.
That’s why it is so important not to limit yourself to one lender and more importantly talk to a mortgage broker that has access to lenders that will be a fit for your lifestyle and investment strategy.
Get Your Financials in Order
Your ability to borrow in the current environment is sometimes as simple as having excess income to service the debt you’re looking at taking on, remembering that this needs to be measured against expenses.
But for many people, they are already inundated with other financial obligations, or simply high discretionary expenditure that could be hurting their ability to pay.
Some of the main culprits are things like car loans, or credit card debt that come with high-interest rates.
Even your credit card limit plays a very significant role in how a lender will assess you. They will assume that your card is maxed out each month and you will be faced with some hefty payments, regardless of whether you, in fact, use your credit card at all.
So consider paying off any high-interest debt and reducing your credit card limits if you don’t need them.
Fix Your Credit
Your ability to borrow will clearly be impacted by your history with credit in the past. If you’ve had credit troubles, that can be a red flag to a lender. They will likely reject your application, or seriously trim your borrowing power.
Prior to applying for any loan, it’s worth taking a look at your credit score and tidying up any issues that might be on your credit report.
At the same time, applying for a home loan and getting rejected, actually shows up on your credit score. This underscores the importance of working with a mortgage broker who understands exactly where you should be applying and will only put your application forward, if there is a very high chance of success.
Boost your deposit
From the lenders perspective, assessing a loan is about assessing risk. Generally speaking, they will be assessing your application on three different criteria.
– Your ability to pay back that loan based on your income and expenses
– Your history with credit (credit score)
– And finally how much security you are able to offer to establish the LVR
If you potentially have any issues with one of these criteria, it is vital that you speak to a finance professional so that you can get some advice on how to overcome these and ensure that your loan application is properly packaged before being presented to the bank to ensure the best possible outcome.
Currently some of our lenders are able to offer up to 85% loans with no LMI for Aussie expats employed in a range of industries.
Contact us to see if you qualify.