There are a number of things you can do to improve your chances of getting a home loan approved. If you’ve gone through our Real Wealth mentoring program, you’ll have studied these actions in serious detail; they include actions such as minimising your bad debt to unlock untapped borrowing power.
There are also external influences that can impact your ability to get a loan and unfortunately, there is little you can do about them.
One such factor has recently been unleashed by Australian banks and lenders, in an effort to cool Sydney and Melbourne surging property.
Interest rates have never been lower, which means mortgage credit has never been cheaper. Combine this with booming property prices and an eager investor market, and banks start to become concerned that a bubble may eventuate and compromise their clients’ financial positions.
So how are they attempting to address this?
By tightening their lending policies to property investors – ie. making it harder or more expensive for you to get a loan.
The Property Investment Professionals of Australia (PIPA) reports that a number of banks, including the Big Four, have amended their lending policies in regards to investors over the last few weeks.
They are either changing their lending criteria to make it more difficult for investors to get loan approval, or charging investors more to take loans with them.
Ben Kingsley, Chair of PIPA, believes this approach – which has been driven by APRA (the Australian Prudential Regulation Authority) – is not a sound solution for the long-term.
“While we welcome and endorse a responsible approach to lending, we are concerned about APRA’s market intervention and don’t believe their lender-by-lender approach is the most effective means to control the property market,” he says.
“We recognise that marketplaces like Sydney and Melbourne are posing concerns, as new and existing investors are potentially speculating in trying to capitalise on boom conditions, and we have been active in warning consumers to be careful about this.
“However, there are plenty of other property markets in Australia and these measures are an unfair imposition on investors who want to invest in other parts of our country.”
Kingsley, like myself, is a huge advocate for consumer information. As he points out:
“The government, APRA, ASIC, RBA and the state consumer affairs departments need to join forces and invest in a consumer education campaign to explain to Australian investors the truths about property investment. Only with a clear understanding of the market can investors make more informed decisions,” he says.
He goes on to state that not every property makes a sound property investment, something my clients learn early in their investing education.
“In this upswing cycle, there will be many who will lose money,” Kingsley adds.
“We need to teach Australians about this, as well as encourage them to seek professional investment advice to limit this from happening.”
I have to say that I agree with Kingsley’s sentiments, and I believe that now more than ever, investors need to be educated about the investment decisions they make – as there will be many who wind up over-paying in hot markets.
You also need to maintain an open line of communication with your mortgage broker to see what impacts, if any, these new investor lending guidelines are going to have on your own borrowing power.
If you’re planning to buy property now or in the near future (the next 3-6 months), I urge you to meet with your broker or check in with our team at Real Wealth Money to ensure that you don’t get caught out by evolving lending policies. The next steps you take will be crucial in either ensuring your mortgage application’s success, or having your loan declined and stopping your investment journey in its tracks.
Til next time, happy investing!