2019- The year ahead and what to expect.
2018 was this a watershed year where the whole lending landscape changed, or another blip along the way? The Royal Commission( RC) into misconduct in the finance industry was the highlight of the year. It lifted the lid on some rather unsavoury practices with some of our banks and financial institutions.
I’m not in a position to comment on a lot of the allegations. But, I am in a position to comment on changes to the lending landscape. Particularly how banks and lenders interpret the findings of the RC.
There have been numerous media comments about a pending credit crunch. Loans being hard or impossible to get as banks and lenders restrict credit. There is some truth in this, but not as much as you may think.
Some types of finance have been withdrawn, or limited. Examples are loans to Self Managed Super Funds and Reverse Mortgages. All the major lenders have pulled out of the former and there is only one credible reverse mortgage provider left in Australia.
Loans that received the most press that is investment property loans and interest only loans are slowly making a comeback. They are still available and borrowers with the right circumstances will get approved.
What to expect in 2019
I wouldn’t say lending is getting harder, it’s just taking longer and requiring more documentation from the borrower. Such as;
- Living expenses-Lenders are under pressure to detail a borrowers real living expenses instead of using a benchmark amount. Sounds good in theory, but can you really put a single number on your living expenses? Don’t know about you but mine vary as needs dictate. Increasingly we are seeing lenders requesting up to three months of banks statements. They trawl through these to see whether you have misrepresented your living expenses. Explanations are then required.
- Other debts– If you have loans, credit cards, etc with a lender other than the one you are using for your loan application, you will now have to provide statements for each and everyone. No longer will you word be taken.
- Income-Increasingly we are seeing lenders requiring more than just your payslips to confirm your income. The statements mentioned in 1. above are used to confirm the after tax pay shown on your payslip.
- Undisclosed debts-This has always be a requirement. But, we now see lenders using your bank statements to confirm you don’t have any debts that you haven’t disclosed. Often call ‘customer behaviour’.
- Borrowing capacity-Across the board, there is a general decrease in the amount people can borrow. This applies to some types of borrowers more than others.
- People with multiple existing loans-Borrowing capacity for new lending has decreased due to the way repayments on existing loans are calculated.
- People with high credit card limits-Repayment calculations on credit cards have increased, decreasing future borrowing capacity.
- Living expenses- If applicants declared living expenses are more than the lenders benchmark, borrowing capacity will reduce.
- Comprehensive Credit Reporting- As this rolls out it will give banks and lenders much more information on your financial situation. No longer will it be just information from past events, it will now include all current loans and accounts.
To be honest a lot of the above is what we would call prudent lending. That is, making a factual assessment of peoples financial circumstances before they are approved for a loan. Finding out you can’t afford your loan after you’ve settled is not good for anyone.
All of the above are what we would call lender responsibilities. But of course as borrowers and consumers, we have to take a high level of responsibility for our actions. I take a very dim view of the ‘well the bank lent me this money and I can’t afford it, therefore it’s the banks fault‘ cry. We have a responsibility to ourselves and our families to get basic financial knowledge on how to calculate our income and expenses. We can then decide ourselves whether we can afford a large loan like a home loan or not.
To be brutally honest, if we can’t figure out for ourselves whether we can afford the loan repayments, then we shouldn’t go ahead.
Getting a loan in 2019-Big Tip
If you need a home or investment property loan in 2019 loan be prepared, it will take longer than before. You’ll have to provide more documents than before. If you use a professional such as myself, we will guide you through all of this, so no need to stress out. I would suggest you start preparing earlier rather than later. Find out what you need and get started.
Part of this preparation is doing new budget. Go through your last three months bank and credit card statements and see what you really spent. I can guarantee it’s more than you thought. Go to ASICS Money Smart website and use their budget tool. It’s very good. If you have expenses over the past three months that are high, out of control or are likely to stop soon, note these and actively work to lowering your living expenses. It may just help you get over the line when you apply for a loan.
Help is here
If all of this sounds too daunting please Contact Us and we will help you through the whole process. 55% of all home and investment loans are now handled by mortgage brokers such as myself. You are in safe and capable hands.