If You Are Sober, Can You Drive a Car?

There are a number of things that you have to prove to be able to drive a car. You need to:

• Be the right age
• Have a licence
• Have insurance

Being sober is just one of the considerations. The same applies for getting a loan – but there is a massive range of responses from the banks to loan applications.  To get a loan you need to have (amongst others):

• enough income
• adequate savings
• good credit history
• identified the right property

Unlike with driving, it is not a case of getting a loan or not. Increasingly, every application is case-by-case.  Here are some examples of how different banks will treat a loan application.  Some banks:

• Will no longer lend against investment properties
• Won’t lend against properties in specific postcodes
• Will factor in negative-gearing benefits when calculating someone’s income
• Won’t accept bonuses as income
• Will lend as much as 95 per cent of the value of a property
• Won’t lend to overseas investors

Pressure from the Australian Prudential Regulation Authority (APRA) has forced many banks to become more conservative in assessing loan applications. But each individual bank has chosen where and when it wants to be more conservative.  As a result an identical loan application to two separate banks is likely to generate to completely different responses.

In general though, it is getting harder to get finance. Last month, prompted by the Reserve Bank, all banks dropped their interest rates.  However, what hardly changed was the rate at which they assess applications; in most cases the banks still assess a client’s ability to make loan repayment by assuming interest rates are as high as 7.25 per cent!

Sure, there are recent examples of banks making it easier to get a loan. For example, this week Westpac announced that it would factor in the benefits of negative gearing to boost an applicant’s income.  But, in the same week, Teachers’ Bank announced that it would be withdrawing from investor lending.

The latest home price data from Corelogic show that dwelling values across the combined capital cities of Australia rose by 1.6 per cent in May with house values driving most of the capital gains, up 1.8 per cent compared with a 0.1 per cent rise in unit values. But continuing this growth is only achievable if Australian’s can get finance – and that is getting more-and-more complicated.

For a no-obligations consultation on your loan needs, please contact Graeme on 1300 30 67 67.