MARKET WRAP: Issue 11: May 26th 2016
Finance is considered the life blood of real estate and at no time in my 40 plus years in the industry have I seen real estate financing as both attractive or as complex as it is at present.
We all know that currently the cash rate is 1.75% and the lowest interest rate ever in the history of Australia. Having operated through periods of time where borrowing rates were as high as 18% and the real estate market was booming, it is quite amazing to see interest rates as attractive as they are. No wonder housing affordability is so good and why the real estate market is as buoyant.
However, borrowing is now more complex than at any other time in my career. The banking regulator, APRA, has imposed significant regulations within sections of the banking industry and most notably the four major banks. This came about from concerns about lending practices, and in particular, to reign in some of the buyer demand that APRA was concerned could undermine banks’ fundamental strength. Even the banks themselves have self-regulated, as a result, there are vast differences in each of the banks’ lending criteria’s. A little-known development is taking place behind the scenes, and that is, credit rating.
In the United States of America, your whole financial viability is based on your credit rating. This practice is now rapidly growing within Australia. Every time you apply for a loan, that is noted on your file and the more application you make, the more of a suspect you become with any lending institution. If you don’t have a good credit rating, you will simply not get finance of any type – car, personal loan, house finance.
How does this affect you?
This makes housing finance applications even more significant. The risk is if you don’t get your finance on your first application and then you have to apply with another institution this will show up on your rating and it runs the risk of you being knocked back on any future loans. With all of the banks having different criteria in their lending practices, you may find that despite being an outstanding prospect for a loan, you have simply been knocked back due the bank not lending for investment purposes. As a result, your bank now wants a greater deposit, or your bank is not lending into a certain postcode and any number of other variables. It really is a minefield at present and literally banks are changing policy on a weekly basis. What was possible last week is not possible this week and vice versa.
APRA is certainly getting their desired effect. They have cooled mortgage lending and as such have had a knock on effect of slowing real estate price growth in many parts of Australia.
How can you get the safest loan?
There is good news! There are many banking institutions that don’t fit under the APRA regulations whilst some banking institutions are incredibly restrictive others are loosening up because they are now fitting within the new APRA regulations. All of this highlights the absolute need to do your finance applications through a broker. Irrespective of whether you have been with a wonderful bank for 10 or 20 years or more it just doesn’t cut it any more. You either fit in your banks criteria or you just get knocked back. There are no more relationships; there is no more history that counts.
We have Queensland’s leading finance broker Phil Rogers as part of our team and the stories he could tell you would amaze you. The great news is that Phil and his team have access to well over 150 financial institutions. The team know the best bank to go to for any borrower and can even make behind the scenes enquiries before even putting an application in so as not to affect your credit rating. They can source the very best finance available and keep shocking people with how low a rate they can achieve for borrowers who thought they were getting great deals from their own banks.
I could go on in great detail but I think you get my gist. Many people are facing the prospect of not being able to get finance. Many people are getting finance on less attractive terms and particularly with higher interest rates than they should be paying. If you are in the real estate market or indeed just wanting to refinance don’t leave it to chance.
The details of Senior Loan Market Broker, Phil Rogers:
Protect your credit rating, get the best finance available and don’t leave it to chance.
I am glad we can help so many at present and look forward to helping you.
See you in a fortnight’s time.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group