It will become even harder to get a mortgage after the banking royal commission, with lenders to be told to do more to check customers’ living expenses, but a Sunshine Coast industry expert says a successful loan application is as simple as ensuring you are “credit ready.”
Banks have already tightened lending standards during the year-long inquiry and on the back of regulator restrictions, but commissioner Kenneth Hayne QC’s final report is expected to lead to further restrictions in the availability of credit.
Loan applicants have already experienced the impacts of tightened lending, with banks having to do more to verify customers’ income and their actual living expenses, rather than relying on the household expenditure measure (HEM) benchmark in assessing mortgages, as well as car loans and credit card limit increases.
Orchard Financial director Nicky Orchard says being “credit ready” will help Coast families improve their chances of securing a loan for their dream home.
“It’s about reducing your credit cards, paying them out and cancelling them while establishing a good saving history,” she says.
“You can be a high income earner, but if you are just spending all of that money, it shows the banks you are a spender and not a saver.
“If you are renting, ensure you are not just paying the rent, but also putting money into a savings account that is the equivalent of a home loan repayment so the banks can see you can service that size of a loan.”
Ms Orchard says financial institutions look at a minimum of three months of transaction history when assessing a loan application, so she advises putting a six-month action plan into place which you can do by seeking out advice from a mortgage broker or financial advisor or utilising the free budget calculator on moneysmart.gov.au to give you an idea of what your current expenses are.
“You need to set your goals of how you are going to place yourself to make you look attractive to the bank,” she says.
“We want to see that clients are ready for that commitment and the extra expenses of household maintenance, rates and insurance, which is completely different to being that of a renter, where all you are worried about is the rent every week.”
Ms Orchard also cautions against making credit enquiries or applications before you have implemented your plan because it will affect your credit score.
The Real Estate Institute of Queensland (REIQ) welcomes the finalisation of the Royal Commission into the banking and financial services sector and the release of its report, but CEO Antonia Mercorella says it is now important that the government and regulators address the problems identified in the report without causing further damage to the property industry and broader economy.
“The property industry is the backbone of the Australian economy. The residential property market is worth almost $7 trillion which is 3.5 times the size of the Australian stock market,” she says.
“In Queensland, real estate is the lifeblood of the local economy, employing around 50,000 people and providing some the state’s largest revenue sources in the form of stamp duty and other property related taxes. A strong and stable real estate sector benefits all Queenslanders.
“Confidence is key to real estate. To maintain the health of the Queensland real estate sector – and the Queensland economy – it is important that Queenslanders are able to access finance so they can buy and sell property.”