We have recently had a number of clients come to us with an expectation that they should have the same amount approved that they had 3-4 years ago. They often forget that – they may have had 2 incomes then and that are now only on one income – and they have a dependant or two now that needs to be allowed for in covering living costs.
Living expenses are being hotly looked at by all lenders now and they apply a minimum living expense relative to the situation. IE: Single versus married or married + children. Often clients are underestimating what it actually costs them to run their home for the 12 months. They cover the basics – like food, car, rates etc – but often leave off things like the beer & pizza once a week or the holiday once a year that ends up on credit card and they pay off every fortnight. Buying a home is a big step and while rates are at an all time low – they will go up at some stage. And when they do – the clients who have allowed for such an increase will survive nicely.
Assessment rates that the banks use to determine what you can borrow have also increased over the past 2-3 years. So even though rates are around 4% they are assessing home loans at 7-8% in case rates start to rise.
We have also had clients start to build – make changes to home with funds on hand – and then found out they need much more. And this can pose problems too. As a home which looks like Beirut on a bad day – does not endear a valuer nor a bank. A fixed price contract is normally needed and an on completion valuation done – to confirm to bank that it will be a satisfactory risk/security property. And then there is the issue of servicing that extra debt. In this case it is much better to ask for approval than seek forgiveness.
Keep your payments on all facilities (personal loans/credit cards & home loans) on time everytime. If you are likely to start to struggle – maybe give a broker a call before payments are missed as it is far easier and cheaper to refinance and restructure a facility when things are in order than when payments have been missed. Communicate and look forward as much as you can.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
