What you need to know about your mortgage (straight from the broker!)
In recent weeks you’ll have heard about the royal commission’s release of the interim report, warning that the tightening of lending procedures by banks could significantly reduce home buyers’ borrowing capacity.
But if this is the case, what will it mean for the average home seeker?
To find the answer, we turned to the referees at the forefront of the shift – mortgage brokers, who have let us in on what the changes will be.
The bottom line
The report has shown a greater push to ensure responsible lending, with further regulation to be enacted by lenders – the first being a proper assessment of income and expenses.
According to Craig Corbett, Finance Specialist at MoneyQuest, living expenses now have a greater influence on borrowing capacity, and higher living costs can, in fact, limit the amount borrowed.
Craig reports that over the next 12 months lenders will also be required to report a person’s repayment conduct to credit agencies, which will affect their ‘credit score’. In other words, a profile built on credit history has turned into a number. The higher this number the better, as it will impact what, with who and at what rate, you can borrow.
The solution?
It is advised that:
- Three months prior to making a loan application, go through your spending. Keep it to a level you would usually spend, if in debt. Discretionary spending is definitely factored into the lending process, so be mindful of gambling, eating out and entertainment.
- Ensure that all loans, including credit cards, bills and other loans are paid on time – EVERY time.
- With living expenses a significant factor, it might be an idea to have a ‘detox’ and reduce these wherever possible – starting with unused memberships or subscriptions.
In theory, the current decline of property prices due to the correction of the housing market could be a benefit for some home buyers, with a smaller price tag reducing the amount needed to be borrowed – in which case, the tightening of lending procedures may be of no concern at all.
Want the best home loan?
Click here for more information, or speak to the home experts today – contact Prudential Real Estate: (02) 4628 0033 | campbelltown@prudential.com.au
