Have you noticed that the banks are getting tougher on lending?
You could be excused for thinking that it has something to do with the Global Financial Crisis (GFC) but it has more to do with the NCCP – The National Consumer Credit Protection Act.
The act came into force earlier this year and among many things is supposed to make the lender responsible for verifying the customers financial situation and their capacity to pay without ‘substantial hardship’.
The bottom line is that if you are over 45 and can’t demonstrate how you will be able to repay a 30 year loan, then there is every likelihood you will get knocked back.
With doubt about future price growth, your guarantee that you can sell the property if you fall on hard times is no longer a comfort to banks.
I met with the owner of a large financial planning firm this week who told me that a growing number of property owners are facing the reality that their homes are now worth less than what they borrowed. The perils of the 100% loan!
Mortgage Choice compliance and corporate standard manager, Tim Donahoo, points out in Money Magazine that some borrowers who were given pre-approval at the end of last year find they no longer qualify because of the tighter regulations.
Those most at risk of being knocked back are older borrowers, self employed, pregnant women, retirees looking to reverse mortgage as a solution and even those with high credit card debt.
Is it really more protection or more red tape? Those in the finance world believe it’s the latter. One thing is for sure it puts more downward pressure on an already stressed housing market.
Should the banks be held more accountable for their lending practices? Has it been too easy to borrow too much in the past?
Kevin Turner | RealEstateTalk Host
Property Academy Sellers Guide–how to get top dollar.
[email protected] | Twitter: @RealestatetalkHere's a bit more information on the mature age borrower, from a recent Vendor Finance Institute newsletter:
Mature Age Borrowers
Since the inception of the new National Credit Code, specifically it's Responsible Lending provisions, you may have noticed traditional lenders knocking back applications from mature age borrowers.This obviously caused an impressive reaction, as recently ASIC came out with some revised guidance regarding this challenge. From my reading of this guidance, the Responsible Lending provisions have now been modified somewhat, so that mature borrowers can be accommodated on an individual basis.
The following link will take you to information on this issue:
http://www.asic.gov.au/asic/asic.nsf/byheadline/11-67AD+ASIC+updates+guidance+on+responsible+lending+obligations?openDocumentOne of the Examples mentioned by ASIC caught my eye and somehow I think it'll be used a lot. It went:
Example 7: Future plans to sell the principal residence and down size. A female consumer applying for a 25-year principal and interest home loan to purchase a new home is currently employed and can demonstrate capacity to meet repayments under the proposed loan? However, she is 55 years old and intends to retire at age 65, with a post-retirement income insufficient to meet repayment obligations without substantial hardship. As it is likely the consumer could only meet her financial obligations post retirement by selling the home, it appears at first view that the presumption in s118(3) applies and, as a result, the loan would be unsuitable.
The lender’s inquiries about her requirements and objectives, however, reveal that she has planned for her future change in financial circumstances and, at the point that she can no longer comfortably afford repayments, intends to sell the home and downsize. She does not wish to purchase a smaller home until this time, however, and also considers the home she is currently purchasing has greater potential to appreciate in value in the years before she has to sell it. Given her expressed intent, if her likely equity position will be such that she can readily pay the outstanding balance of the loan at the time of the planned sale, it is reasonable to assess the loan as ‘not unsuitable’.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Kevin,
Great post and i always love to read your post too. I think its a 50 / 50 situation.
I think banks are just adjusting to the current climate of the economy.
I think banks will lend if the customers have assests but there is alot of people who just have plenty of debt, Credit cards, car repayments, school, personal loans.So i look to look at this in two ways are people carrying to much debt vs real assests?
Jpcashflow | JP Financial Group
http://www.jpfinancialgroup.com.au
Email Me | Phone MeYour first port of call in finance :)
The NCCP has inadvertently made obtaining finance for this demographic more challenging. However, it's not impossible – and it's certainly different when purchasing an IP as opposed to a PPOR.
We simply have to illustrate to the lender that an exit strategy is in place.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
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