Getting a Loan - Mission Impossible or Possible? - March 2019
March 5, 2019 / Written by Rich Harvey
Interview with Graeme Salt, Chan & Naylor Finance
Interview with Graeme Salt,
Managing Partner, Chan & Naylor Finance
1.If you were to compare the current lending environment to 5 years ago, what have been the most significant changes?
A little over 5 years ago Kevin Rudd was Prime Minister; David Bowie was alive, few of us had used Uber and none had heard of Deliveroo.
It’s impossible to compare lending now with then. The Australian Prudential Regulation Authority (APRA) is forcing more consistent lending standards on the banks so that, whichever bank you go to, they will pretty-much lend you the same amount.
As a result, banks are competing against each other in different ways. Interest rates are the most obvious way, but many commit to higher service standards; others sell funky wearables to entice you to them and others will offer you a barrel-load of Frequent Flyer points if you take out a loan with them.
The lenders who can often lend you more money are the non-banks – who aren't regulated by APRA. They have roared back in the market in ways not seen since Wizard Home Loans.
Technology is also playing a part; its physically easier to arrange a loan via a mobile app. But technology also allows the banks to scrutinise your spending habits – if you spend too much time on the pokies and want a loan, the banks will find out.
2. Do you think that many potential property buyers are scared off by the banking royal commission and the stories about tighter credit so they just haven’t bother applying for a loan? Is there any research around that?
There’s no-doubt that many Australians have been shocked by what they saw at the Royal Commission. The astute ones use mortgage brokers because brokers are able detect BS from lenders and call them out.
Momentum Intelligence research found that 96 per cent of customers are satisfied or very satisfied with their mortgage broker. Year-on-year the number of home loans arranged by mortgage brokers has increased – this year reaching 60 per cent of total new loans.
Good brokers only submit loan applications if they are expecting an approval – and they will tell you if you are wasting your time applying for a loan – so there no need to be scared-off; it’s just a case of a “what are my chances” early conversation before starting the purchase process.
3. What can potential borrowers do to position themselves to get loan approvals as easily as possible?
Be prepared! There have probably been lots of changes in lending since you first got your loan; just assuming you can do what you did last time won’t cut the mustard. Nowadays there’s a lot more leg work in a finance application.
Comprehensive Credit Reporting means that, a long way before making a finance application, borrowers need to be sure they have a good record paying things like credit cards and utility bills. Plus, nowadays, when banks assess loan applications, they want to see up to three months’ transaction statements which means, if your bank statements shows heaps of reference of Afterpay or Deliveroo, they may question your commitment to paying off a loan.
Good mortgage brokers have long-term relationships with borrowers so that they can make sure the borrower is properly prepared way before the loan is submitted
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4. With the Royal commission now complete, when do you think credit controls will be relaxed a little? What will the banks do to attract more mortgage customers?
We are already starting see early signs of this. Banks will compete aggressively for good quality new business – one lender is offering 3.5 per cent for an owner-occupied loan.
APRA is also loosening the reins of investor lending, plus the gap between interest only and principal & interest is also reducing; some interest only loans are now as low as 3.84 per cent.
But the days of easy-money are gone.
5. What’s your prediction for interest rates over the next 12 months?
It's looking like a couple of rate cuts are on the horizon – not only is the property market in negative territory, wage growth remains flat and employment appears to be peaking.
However, if you are expecting massive discounts in interest rates, you will be disappointed. The fundamentals of the economy remain strong – most of us still have jobs and immigration is still bringing in more people who, ultimately, will want to buy a property.
6. Do you think that the current market has opportunities for astute buyers and why?
One of the World’s richest investors, Warren Buffet, has a phrase "Be fearful when others are greedy. Be greedy when others are fearful.” We are seeing a bit of this at the moment. The seasoned investors see this time as a good buying opportunity while virgin buyers are just scared.
If we are not at the bottom of the market now, we must be pretty-damn close. Most successful investors hold property for a longish period of time and are able to ride out the market dips with patience.
7. Why should you consider using a mortgage broker rather than going direct to the banks?
There are many good brokers out there – why they appeal to different borrowers depends on what the customer wants. But let’s face it, if you went into your local bank for a loan, would they tell you that the competition had a better offer?
Brokers typically have access to around 30 lenders – many of these lenders only go through brokers. These lenders have very differing lending policies to each other; navigating the maze can be difficult for non-experts. Who lends against Company Title? Who accepts bonus income or studio apartments? The answers to these questions vary and Joe or Josephine Blow would not be expected to know the answer.
Brokers take pride in finding the right deal for the borrower.
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