In amongst all the hurdles that have been placed in front of home buyers as a result of the social distancing regulations, recent changes on the loan approval front have tended to fly under the radar but could easily have an impact on how you go about purchasing your next home.
The word we are getting from several mortgage brokers around the State is that many of the home lenders have put new loan qualification rules in place that have made it a little more difficult for some buyers to get approval for their home loan.
One example is the National Bank, which in recent weeks has made changes to its rules on borrowers aged in their 50’s. The NAB now requires borrowers aged over 55, or planning to retire within 10 years, to document their post retirement loan repayment strategy. This may require evidence of financial assets worth more than the loan value, a plan to downsize including how much equity will be left from the existing property, or even having a co-applicant for the loan aged under 55 years.
Of course, for buyers at the opposite end of their property journey, one of the major hurdles that continues to be an issue for first home buyers is less about the ability to repay a loan, and more about getting loan approval in the first place. With interest rates at record lows, housing is currently at its most affordable level for over two decades. Recent data from the HIA shows that Australia’s current median priced home requires less than 1.2 average incomes to service the loan. In contrast, this figure was 1.4 average incomes just three years ago.
The issue for many home loan applicants is that the Australia Prudential Regulation Authority still requires lenders to assess your eligibility based on an interest rate 2.5% above the actual rate. When the average new home loan is being charged below 3%, this is a huge obstacle for most applicants, as well as being an irrational one given that interest rates are not expected to rise at all for quite a few years.
An important tip for anyone planning on purchasing a property in 2020 is to ensure that if you are buying subject to approval of finance, you leave yourself sufficient time to obtain this approval. So be sure to discuss this with your lender or mortgage broker to confirm how long this process may take.
Keep in mind that the team at Ian Reid Buyer and Vendor Advocates is always here to provide you with experienced advice on any property matter. If you would like to chat with an Advocate, you can call us on 9430 0000. You’ll also find plenty of useful tips in our free booklet, “Fatal Real Estate Traps Exposed”