Getting a home loan used to be so easy but it can now be a frustrating experience.
What went wrong?
It’s because of the Government
The banking industry regulator, the Australian Prudential Regulation Authority (APRA), has been trying to change the way banks lend money.
Prior to the Global Financial Crisis (GFC), self-regulation was the order of the day.
Ever since then, responsible lending has been the focus, particularly since 2015.
Efforts to create a safer banking experience for consumers is a good thing, right?
Of course but the problem is that APRA has overlooked the negative effects their measures have had on the customer experience and the inefficiencies that have been created.
Documents, documents and more documents
In the past, banks could accept what you tell them on the home loan application form.
Today, they need to verify much more of your situation.
Often this is progressive: they ask for one document and then they ask for another!
This going back and forth is very frustrating for everyone.
The best way forward is to give the banks what they want: arguing gets you nowhere.
Check out our application documents checklist to be prepared.
What about silly questions?
Banks are required by APRA and the Australian Securities and Investments Commission (ASIC) to keep records explaining why they assessed your application in a certain way.
If your bank asks you something that is common sense then this is likely why they did it.
Just answer their questions and your home loan should progress to be assessed.
In the past banks, used the Henderson Poverty Index or the Household Expenditure Method (HEM) to work out the living expenses of your family.
Now they ask you to estimate your living expenses and then take the higher of the HEM or your declared expenses.
If you have a high household income, they’ll scale your living expenses to be appropriate for your income.
If your declared living expenses are too low, your mortgage broker may get in trouble for not having a meaningful discussion with you about your living expenses.
What if you have high living expenses?
Now is a good time to consider budgeting and changing your lifestyle.
It makes sense to do this when you take on a new commitment like a home loan.
In recent years, APRA put a cap on the growth of investment lending for the banks.
As a result, the banks are discounting rates for home loans and putting up the prices of investment loans.
You may find some banks make it hard to get approved for an investment loan or stop doing investment loans altogether.
In these cases, it’s best to change banks.
This is something that one of our mortgage brokers can assist you with so complete our free assessment form and let us know what you’re planning to purchase.
Interest only loans
Interest only loans actually cost more in interest over the term and can lead to borrowers not paying off their property before retirement.
APRA requires the banks to limit interest only lending and, as a result, the banks have put strict qualifying criteria in place and increased interest rates.
Interest only loans are unsuitable for most home buyers but may be suitable for investors depending on their strategy.
We strongly recommend that you consider paying principal and interest instead.
Only a few years ago, the banks would approve a 30-year loan to a 60-year old!
Now, they consider your retirement age and whether you can repay the loan before retirement.
Again, this comes from the guidelines set out in the National Consumer Credit Protection Act 2009 (NCCP act), which is managed by ASIC and also responsible lending changes instigated by APRA.
We recommend that you discuss your home loan plans with your mortgage broker and work out how you are going to pay off your loan before you retire, or pay it out from superannuation or from downsizing.
How can a mortgage broker help?
The regulators have their fingers in almost every stage of the application and approval process.
This has drastically slowed up the process for the banks.
Where mortgage brokers really shine is the ability to speak with the key decision makers to speed things up whenever things are slowing down.
We also know exactly what the banks are looking for in an application so we always ask for all of your documents upfront to avoid delays.
Please call us on 1300 889 743 for a free, no obligation assessment or, alternatively, fill in our easy online enquiry form.