Glen McLeod is director of Edge Mortgages. He’s answering readers’ questions about home loans, whether you’re a first-timer just getting into the market or someone who already has a loan and is wondering about the best way to manage it. If you have a query, email firstname.lastname@example.org
Why are banks so secretive about how they assess people for loans? Is it to avoid people gaming the system? Or so they don’t put off customers?
In the current environment where interest rates are rising and it would appear house prices are reducing, the banks have to make sure that they are being responsible in the way that they lend money to customers.
Banks keep the details of how they assess lending for a number of reason. Mainly because the information is commercially sensitive and they do not want to give away information to assist other lenders.
How they set their requirements can be determined by their appetite for lending at the time. How they view any legislation requirements and I would imagine the profit margin depending on availability of funds. It is a way of turning the tap on and off for the flow of lending.
All in all, the reality is that there is no secret to lending. It is broken down into a number of factors:
Security: The type of property that the lender would be taking as security tends to dictate the loan-to-value ratio they will go up to on the property. What they will lend on a standard residential home compared to a serviced apartment varies greatly.
Ability to repay: Your income and fixed commitments and spending habits are under the spotlight. With the CCCFA Act new rules, this has become more apparent over the last six months or so.
Willingness to repay: What does your credit history and bank statements show of your ability to manage your money? Do you have unauthorised overdrafts on your bank statements of have you defaulted on loans in the past?
As a borrower the best thing that you can do to be ready to borrow money is reduce all short-term debt, understand your spending habits and make sure you are managing your bank accounts and credit history. Save as much deposit are possible to be ready. The less money you have to borrow the greater your affordability will be.