Anyone applying for a home loan these days will find that there are more hurdles to jump than has recently been the case. So why is it harder to get a home loan? And what can you do to improve your chances of getting a loan?

Home loans and the Royal Commission

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that concluded in early 2019 discovered a number of lax lending practices by some of Australia’s biggest lenders. Of particular concern was that some banks failed to verify the living expenses of home loan applicants. In many cases this lead to people receiving loans that they were unable to repay. The Royal Commission also revealed that one of the bank regulators, ASIC, did little to punish misconduct, so there was little incentive for banks to comply with their legal obligations.

In response to the Royal Commission, ASIC promised greater scrutiny of lending practices and lenders began to ask for a lot more information when assessing home loan applications. They now require detailed proof of both income and expenditure at a level that many people may find intrusive.

Penrith’s growth and the need for bigger home loan deposits

Penrith is growing at a rapid rate, and while there has been decline in home prices in some of Australia’s major cities, in Penrith buyers aren’t so lucky, which can make it harder to get a loan. However, falling prices create a greater risk for the banks, and one way to reduce this risk is to require a higher deposit, extending the time it takes to save that deposit.

Just because your home loan may be at 6% doesn’t mean it’s tested at 6%

Even before the Royal Commission, the prudential bank regulator, APRA, introduced a requirement that banks check on their borrowers’ ability to service their loans if there is a significant increase in interest rates. While it might be possible to borrow at an interest rate of less than 6% per annum (pa), the banks need to check that the loan is still affordable at an interest rate of more than 9% pa, thus reducing the amount that can be borrowed.

Looking to buy in Penrith? When getting a home loan, there’s nothing better than being prepared

While lenders are certainly getting more stringent with their stress testing, borrowers are finding that they have to be more prepared than ever before. Unless you’re able to increase your income, you’ll need to save more (check out our free Savings Calculator to work out how much you can save). Inevitably, that means spending less:

• Calculators such as our free online Budget Calculator can help you track your spending and make it easier to work to a budget.
• Keep records of your saving and spending. You will be asked for them come loan application time.
• Start early. You’re more likely to be successful in your home loan quest if you can show a consistent history of saving and responsible spending spanning years rather than months.
• Shop around. And that means, use a mortgage broker (you don’t have to be located in Penrith to work with us!). You want to check out what banks and non-banks have on offer, and a mortgage broker is the most effective way to not only find the right home loan, but also to make the process run far more smoothly. 

If you’re looking for a home loan, either for your first home or perhaps refinancing, let’s talk. We’re located in Penrith but provide home loans for clients Australia-wide.