Issue 11 | April 23rd, 2020 | Finance Challenges Like Never Before
Hi, Andrew Bell here with you. Today I want to share with you some insights into one of the most vital parts of the real estate market – financing. It is quite breathtaking what has been happening in this space, not only in the depth of change but the speed of which things are changing.
If we thought the Royal Commission had a huge impact on the banking industry, it was nothing in comparison to what COVID-19 has triggered.
Finance is of course the lifeblood of real estate. Very few people buy without the need for borrowings. Whilst there is an abundant amount of money available to borrow, it is getting finance approval and having banks locked into those approvals that is the battle.
I should say upfront that with the significant falls in interest rates and with a percentage of people’s incomes being affected, or the fear of income being affected, refinancing by existing homeowners has gone through the roof. We have been assisting so many of our clients, in particular our landlords, in refinancing and are saving so many people thousands and thousands of dollars per year in interest. This of course has put an even greater pressure on staffing levels at the banks.
Speaking of staffing levels, banks have been inundated with queries from customers in relation to deferring loan repayments and a good deal of ‘crisis management’. This has caused banks to take staff off other core jobs, including processing loan applications, to deal with the avalanche of calls and work from those calls.
For new people applying for loans, it is not unusual that the application for a loan will sit on someone’s desk for at least a month before the file is even opened. It can take several weeks to be processed and the banks are looking for far more evidence now of people’s employment, income and expenses, and risk profiles. The amount of paperwork needed is significantly greater. For many people, this is leading them to simply throw their hands in the air and lose interest. Many have been disappointed as they have missed out on properties because they simply couldn’t get their finance in order to purchase ahead of others who actually have finance approval.
There are some clear tips that I would like to share with you. First, if you are ready to buy – and there are some great buying opportunities at present – you need to get an application in now. You need to get finance approval before you start looking and you must be prepared to supply a significant amount of documentation. Second, you must use a broker. The success rate of individual people sourcing finance themselves is extremely low. This can be from picking the wrong finance institution, completing forms incorrectly, not knowing the traps that exist in a loan application that should be avoided, and purely the amount of time it takes to process the application. Third, the broker must be very experienced and work with a wide range of financial institutions. The Top Four banks are probably the worst institutions to try and get finance from today. Their criteria are tougher than anyone else and the bottleneck of existing client management is so large that they will be the slowest in processing. Loan Market, for example, works for 64 different banks and generally the second-tier banks are hungry for business, are hugely competitive, and are so much easier to do business with. Fourth, once you have finance approval you must move quickly to buy. When I say quickly, usually within two weeks of receiving your approval because banks no longer have open ended approvals and generally an approval will only last for two weeks, after which, if you were to find a property, you would be required to update the bank on your status. This is because many people have had working hours cut back or people are still losing jobs and they want to make sure anyone they are financing has not been affected in the couple of weeks since the approval.
Having said all the above, there has never been a better time to buy. Interest rates are at all-time lows and really can’t go any lower. There are fabulous finance packages for owner-occupiers and investors. For those who are finance approved and can purchase, you will get front running in any negotiations on a purchase. You will be of more interest to the seller than a person who does not have their finance approved. In other words, you are in a stronger negotiating position.
Whilst COVID-19 is impacting on us all in so many aspects of life, the good news is that there is plenty of money to borrow. We are not in a credit squeeze. However, the uninformed will be sadly disappointed when going to look at a property and thinking that they will have no problem in buying the property of their choice. They will miss out on great opportunities that exist at present where we have sellers who would like to sell their properties fairly quickly but will only deal with finance approved or cashed up buyers.
Phil Rogers from Loan Market is one the most experienced brokers in the country and are fully open for business. He can save you a considerable amount of money and isn’t it better in your pocket than the banks? For those who want to take advantage of the current market, get your loan application in now so you are in a ready, willing and able position to capitalize on the opportunities.
I have plenty more to share with you and I’ll be back with you in a fortnights time. In the meantime, if you are thinking of selling please contact us because The Ray White Surfers Paradise Group will be leading people out of the darkness with very positive and proactive ways to free you up and let you get on with life.
Let’s not weaken our resolve so please continue to adhere to all our restrictions.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group