With the release of the final report of the royal banking commission expected early in the New Year, the most common question amongst customers is ‘what will it mean for me?’.
The interim report outlined findings that in certain circumstances banks have lent more than was appropriate too often. So where does that leave borrowers? All signs indicate a much more conservative approach to lending from banks and as a result a more extensive process for those applying for a home loan.
For those intending to be in the property market, it could mean more time to fulfil deposit or employment requirements as criteria becomes stricter. All home loans are ‘stress tested’, meaning the lender will want to know that you can not only afford the home loan now but if rates were to raise as well. On the plus side for those after their first property, there are indications lending tightening could lead to a slowing of the property market and the potential for house prices to fall further.
For those at the point of application, it means more paperwork to prove how your money comes in and how it goes out. Prior to the royal commission, 70-80% of home loans in 2017 referred to the Household Expenditure Measure to make assumptions about how customers use their money. Increasingly banks are requiring detailed accounts of income and expenditure. There has also been a tightening on lending criteria, particularly for marginal borrowers such as first home buyers and the self-employed. When you go to apply for a home loan, you can expect to have to provide:
- Two recent payslips (self-employed will need two last tax returns)
- Proof of your identity (e.g. drivers license, passport)
- Proof of outgoing expenses (e.g. bills, spending habits)
- A Contract of Sale, or rates notice if you are refinancing
- Six months of home loan bank statements if you are refinancing
- Any credit card, personal loan, car loan etc. statements
For those who are currently mortgaged, they may feel like they can breath a sigh of relief that they are already happily paying down their property. There are risks, however, when it comes to refinancing. What was financed prior to the commission may no longer be acceptable under tighter lending criteria, meaning there is potential for borrowers to be stuck in mortgages unsuitable to their needs with high rates or large repayments until they are able to fulfil the new criteria. If you are looking to refinance, you can talk to one of our home loan specialists to see what your options may be.
It’s important in the current unpredictable landscape to partner with a broker who is there to advocate for you. Not all banks have the same lending criteria and by using a broker you complete only one application that can be used for over 70 lenders. This saves on your paperwork but it also means you have a trusted partner presenting you with suitable options tailored to you, saving you from making multiple applications yourself that can have a negative effect on your credit score.
Using a broker means you get things right the first time with the benefit of their expertise of the current lending landscape and their support for the life of your home loan. Whether you’re thinking of purchasing, ready to apply or wanting to refinance, FundingPro can guide you through the process. Talk to one of our home lending specialists on 1300 898 765 or apply here.