Monday, May 20, 2019

FINANCE

Trying to get finance has always been a nerve-wracking process, but since the Royal Commission into Australian banks it has become harder. The Royal Commission had a big focus on irresponsible lending within the financial sector with banks found to be providing unaffordable loans to people. As the lax lending starts to be reined in, some might find it harder than ever to get finance. 

So, if you are keen to get a home loan this year, here are some tips to improve your chances: 

1. Go easy on takeaway and Netflix

Have you heard of "the Nexflix test"? In the wake of the Royal Commission into banking, lenders are now asking potential borrowers about things like their Netflix subscriptions, their daily coffee habits and even Uber Eats deliveries. If you are spending too much on anything deemed trivial, you could be knocked back. 

So, how should you manage this proactively? It is recommended that you look at the last three or four months' worth of your debit and credit card statements, highlight any expenses that stand out as "non-essential". Takeaways, bars, restaurants, lunches, Uber, Uber eats, streaming subscriptions, coffee on the go... tally up the total for all of this spending. If it adds up to a sum you are not comfortable with consider easing up on your frivolous spending; it is the best way to get your finances in shape, prior to approaching the bank for a home loan. 

2. Get your finances in check

Once you have got your spending under control, you need to get your finances in check. Have a look at any debts you have and check your credit report. Lenders are not keen on approving mortgages to those who have lengthy or large credit card debts against their name, because it acts as a red flag that you are not able to live within your means, so if you are in debt, you may need to get some of this paid off as quickly as possible, speak to your broker about this for advice on what to do. 

Take a look at your credit report. You are eligible for one free credit report per year from Equifax or you can reach out to national credit reporting agencies like Dun & Bradstreet, Experian or Get Credit Score. Your credit report will list any previous credit cards or loans, including defaults and bankruptcies.

3. Understand interest rates

The RBA currently has interest rates at a record low. However, they are not likely to stay that way forever, and it is important to factor that into your potential finance as well. Interest rates on home loans are around 3.5-4% but historically they are alot closer to the 6-7% range. Banks will automatically assess your home loan with a higher interest rate and if you cannot afford the repayments at this higher rate, they are more likely to deny your loan application. By watching your spending and increasing your savings, you will be in a better position to cope financially if and when the rates do rise. 

There may be a newer, tighter lending regime to navigate but that does not mean your dreams of owning a property are over. On the plus side, you can feel confident that any home loan you apply for will not be approved beyond your means, meaning you have a much lower chance of struggling up Mortgage Mountain. Get educated and make smart money decisions and you will be well on your way to securing that all important 'yes' from the bank. 

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Contact Details

Zippy Finance 

PO Box 3078
North Turramurra
NSW 2074

T 1300 855 022 

Louisa Sanghera is a credit representative (437236) of BLSSA Pty Ltd ACN 117 651 760.  Australian Credit Licence 391237. ABN 85 168 278 975.

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