Finance News

Changes in the borrowing market

Author: Courtney Thomas

Investment Lending

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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ASCK Pty Ltd (ACN 105 450 566), trading as AMEGA Financial Solutions is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited Australian Financial Services Licensee and Australian Credit Licensee 232 706. General advice warning: This website contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

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