Property finance crunch

By Janet Spencer

Source Pixabay.com

There is a property finance crunch happening right now in 2018.  We are hearing that loans are hard to come by after the Royal Commission into banking has forced change on lenders. The amount you can borrow is being impacted.  Also, whether you can borrow may have changed.

If you could have borrowed $1 million a few years ago, it might only be $600,000 now.

So, what is causing this finance crunch?

There have been two major shifts in the way banks assess borrower’s capacity to service loans.

1. The estimate of household expenses has been raised substantially, and
2. There are new expense tests now in place.

Lenders now want to see detailed breakdowns of expenses, not just fixed costs but discretionary spending as well.  New tests may require weekly, fortnightly, monthly and quarterly spending analyses.  They can look at expenses like shoes, doctor visits, pet costs, travel, haircare and grooming, alcohol, entertainment etc.  I think I heard it was expenditure in up to 37 categories.

One mortgage provider gave this example of the changes for property buyers in 2018.  She explained that previously if you had combined income of $200,000 and estimated expenses of $32,400 you could have borrowed $1,144,225.  Now if you had the same income your estimated expenses would be $88,320 and you could only borrow $792,804, a drop of 31%.

Another consequence of this credit squeeze is that property owners should be cautious about refinancing. You may think you could get a better deal from another lender, only to find that you can’t refinance at all.  So, many property owners are now locked into a mortgage product unable to move away.

How is the finance crunch affecting Buyer Solutions clients?

Investors are being asked to move from interest only loans to principal and interest.  Repayments are higher, and this will affect cashflow.

Investors and home buyers can borrow less, affecting what and where they buy.

All clients at Buyer Solutions are advised to have their loan approval in place prior to starting the property hunt with us and certainly before signing a contract of sale.

How is the finance crunch helping Buyer Solutions clients?

We have been the only bidder at several auctions recently and bought the target properties for excellent prices where motivated vendors met the market.  Other buyers were present at these auctions; however, the selling agents tell us that often they are unable to bid and buy on unconditional terms as they need to offer “subject to finance”.

For up to date information on buying property in Melbourne and Victoria contact us on info@buyersolutions.com.au or +61 3 9816 8555

Buyers Advocate, Buyers Agent, Housing Affordability, Housing Market, Investment property, State of the market

borrowing, Buyer Solutions, investment property, Janet Spencer, lending, property finance, royal commission