Changes in the borrowing market
Posted on 22/05/2018
Author: Courtney Thomas
You would have read articles and seen in the media that APRA have made it more difficult for investors to borrow in order to reduce the investment market in Australia. This has included increasing interest rates, tightening of policy in regards to loan to value ratios and limiting the levels of funds borrowed.
With all the drastic changes the lenders made last year we are starting to see the process become a bit easier although it is still being monitored closely.
Living expenses assessment
Prior to Christmas, a client was able to note on their application their estimated living expenses and lenders would base their assessment of living expenses on the ‘Household Expenditure Measure’ (HEM) and Henderson Poverty Index (HPI) guidelines. This has now completely changed. A borrower would now need to support their living expenses declaration (which is now broken down into categories) and potentially provide bank statements to confirm the stated expenses.
Example: The living expenses used for a couple with children under the old HEM and HPI is around $2,700 per month. BUT if the lender reviews the borrowers bank statements and says continuous payments to credit cards and withdrawals, they can question if the living expenses are within reason of their declaration and if they believe it is higher than what they have declared, the lender will use the higher figure for serviceability which means capacity to borrow would reduce
Serviceability based on debt with other financial institutions - using the actual remaining term
If a client is refinancing or purchasing a property and has other mortgages, lenders will now ask for those loan statements and evidence to confirm the limit, balance and term left of the loan. They will then base servicing those other loans on the actual remaining term.
Provide loan statements for all other debts
As well as the above requirement, borrowers will now have to provide a statement for all their debts (mortgages, credit cards, leases, personal loans) within the last 30 days and for at least 3 months to support their good conduct of their loans. Clients will be required to obtain these statements from their lender which may make it inconvenient and cumbersome for the client.
In summary, whilst all the changes in the industry can be quite tedious we are constantly training and investing our time into ensuring we are educated. By going through the lending process with a broker you will not have the headaches and will have someone beside you to walk you through the process as smoothly as possible.
For any more information please do not hesitate to contact AMEGA Financial Solutions on 03 9908 3390.
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