Since the Royal Commission into financial services ended, there’s been a change in the way that banks and lenders review your home loan applications.
The details of these changes are complicated – I’ll give you a simplified update in a moment. However, the end result has been brokers like me spending hours upon hours, reading through bank statements to make sure your UberEats, online shopping and AfterPay expenses are all accounted for in your “estimated expenses” list in your loan application.
You see, after the Royal Commission, laws were introduced that were designed to protect you. The government wanted to ensure that borrowers don’t end up biting off more than they can chew financially.
After all, the Royal Commission had revealed story after story of everyday Australians being ripped off or financially disadvantaged, due to banks’ and lenders’ lending money very freely.
When the government realised that many people were getting mortgages and debts that they couldn’t afford, the decision was made to make it harder – much harder – for people to get a loan. They did this by introducing strict and onerous rules and regulations around how a loan application is processed.
As you can imagine, with such a massive shift in the way that banks and lenders assessed loan applications, these changes have resulted in a number of people who would have previously been approved for finance, finding themselves unable to get a home loan.
So – what impact did restrictive lending laws have on property markets?
With fewer people able to borrow money and less access to finance, most people can’t move forward with a property purchase, so these restrictive lending laws did take some of the competition out of the property market.
Major capital city markets in Sydney and Melbourne were already starting to simmer down after a boom period of strong growth.
When these restrictive lending laws were introduced – together with other regulations, designed to make loans more expensive and hard to access for landlords – property markets slowed down.
In fact, we saw very minimal price growth (or even price falls) in many markets.
Wait – but these restrictive laws are set to change again?
That’s right! One thing these laws didn’t factor in was a forthcoming global pandemic. In an effort to keep the economy ticking over – because property transactions generate a huge amount of taxes and economy activity – the Federal Treasurer Josh Frydenberg has announced that in March 2021, these laws will be wound back.
The goals is to make it easier for consumers to get a loan, once revised laws are passed.
If you’re considering buying a property – what does this mean?
If you have been locked out of the market and unable to access finance, this means you should have an easier time gaining loan approval.
For borrowers who are already able to access finance, this means you should consider acting sooner rather than later!
This is because in March next year, there’s going to be a big increase in the number of people who can afford to buy property.
When demand for property surges, and supply doesn’t meet the demand, then prices go up. So if you wait until next year to take action when you’re ready to buy now, you could find yourself competing against many more people.
I’m not a property expert, but I am an expert when it comes to finance. Whether you’re ready to start property shopping now or you think you’re still 12 months away, feel free to get in touch as my team and I can help you get “home loan ready”.
This is really important, because all of the banks and lenders have wildly different policies at the moment. I can have a borrower in front of me who would easily be approved by Bank A, but who would be rejected by Bank B – simply because their appetite for risk and their policies are different.
This is why my advice is to speak to a broker for tailored advice, if you wish to refinance or you are thinking of buying a home. We may be able to help you get into a loan that saves you a small percentage on interest, or we may be able to find a lender willing to approve your loan when your bank says no. As a broker we always act in your best interests and best of all, our service is free! The banks pay our commission, not you – so you have nothing to lose, and everything to gain.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.