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For individual homeowners, a mortgage is often their single largest source of debt and has the greatest effect on their finances, and their ability to stay solvent through wage decreases or wage losses. For lenders, mortgages are typically the most significant asset on their retail banking book, which means that any changes in originations, repayment schedules, and default rates will have significant impacts on their profitability and liquidity.
We recently spoke with Mark Polatkesen, Director and Senior Mortgage Broker at Mortgage Domayne, about the impact of COVID on the lending market and some of the things you should take into consideration if you’re thinking about applying for a mortgage right now.
How has the lending landscape changed over the last 12 months?
There’s no doubt that COVID has had an unprecedented impact on Australia’s lending landscape. Over the last year, lending institutions have had to grapple with lower interest rates, weaker economic growth, higher non-performing loans, and accelerated disruption from new technologies and new competitors, all of which has led to a tightening up of the mortgage market and saw a number of lenders become stricter – and slower, about approving mortgage applications.
At the same time, in the wake of the 2019 Banking Royal Commission, lenders are now more clearly aware of the reputational risk they face if customers feel they are treated unfairly, with the major banks especially, more willing to work with Governments to improve social outcomes. For example, since the start of the pandemic, Australia’s largest bank, Commonwealth Bank, has provided repayment deferrals on over 159,000 home loans, 21,000 personal loans and 19,000 credit cards. Overall, more than 900,000 Australian loans have been deferred since the start of the pandemic, with over 650,000 Australians deferring their mortgages until 2021.
Interestingly, however, reduced opportunities to actually spend discretionary income, has seen a number people actually increase their savings over the past year.
And the net result? With interest rates remaining at record lows, and with many lenders keen to attract customers back now most COVID related changes have now returned to normal, those that can afford it are now more actively re-entering the housing market and/or refinancing existing loans on more attractive terms.
When should you talk to a Mortgage Broker?
If you’re thinking about buying a house, it is worth speaking to a Mortgage broker up front. Right away, we can provide you with an overview about what you can and can’t afford to borrow and also provide you with relevant information about deposit requirements as these all change from lender to lender. Also, every lender operates under different lending policies. So, we can help ensure you are applying to the right lender for the most appropriate mortgage product – and on terms, that best suit your requirements.
And it isn’t always just about the cheapest rate. A broker will also break down things like repayments, fees and charges, all of which will impact on your ability to service the loan on an ongoing basis. Lastly, they can provide guidance about your potential eligibility and access to government grants like the First Home Loan Deposit Scheme and the First Home Buyer Grant.
How do you get a credit report?
As well as assessing your current financial position, lenders will also look at your past credit history to determine your ability to service a loan. If you want to know your credit rating up front, you can apply for a credit report on-line for a small fee with companies like illion or Equifax. Or you can ask your mortgage broker to do this for you. For example, we have an account with both and offer this service in-house.
What will lenders look for in your savings history in 2021?
Each lender’s criteria will vary depending on how much deposit you have managed to save. Typically, however, most lenders will want to see savings patterns that deliver the equivalent of around 5% of the purchase price over a period of 3 or more months. Usually if you have a guarantor or a deposit of 10%, some lenders may waive this condition.
Any tips on saving?
The best place to start, is to set yourself a budget and work out how much you can afford to save and how quickly. Begin with a budgeting worksheet and stick to it. And make sure you set aside your budgeted savings, each month before you spend, so you don't impact your budget plan inadvertently. Setting up automatic direct debit facility with your bank transferring your pre-determined savings amount from your salary to a separate account and is one of the best ways to do this.
Another often overlooked but easy thing that people can do to save money, is to consolidate all their banks accounts just one or two accounts to reduce fees and charges. And don't forget to go through your bank statements and cancel any unnecessary subscriptions etc. Most people don’t review their statements that regularly, and quite often you’ll find are paying for items you no longer need.
Lastly, look to pay out credit cards and/or minimise credit cards limits; apart from the fact that they attract high levels of interest on outstanding balances, they will also impact your borrowing capacity.
All content provided by Dennis Family Corporation (DFC) is for general information purposes only, we make no representation or warranty as to its currency, accuracy, reliability or completeness for any other purpose. Mortgage Domayne is an independent third party mortgage broker not related to or controlled by DFC and DFC has no control over information provided by Mortgage Domayne to its existing or prospective clients. Please note Mortgage Domayne does not provide tax, legal or accounting advice. Any information contained in this document is of a general nature only and does not take into account the objectives, financial situation or need of any particular person and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Therefore, before making any decision, you should consider the appropriateness of the information with regard to those matters and consult your own tax, legal and accounting advisors before engaging in or considering the appropriateness of any transaction. The information provided above is specific to the particular situation described and individual experiences and results may vary. Past performance is not an indication of future performance and no representation or warranty is made that the information contained above is appropriate for any particular circumstances or indicates that a particular course of action should be followed. Mortgage Domayne Pty Ltd is a licensed credit representative of AFG (Aust Credit Licence 389087), Credit Representative No. 485894.