Beat the Loan Crackdown

Insider knowledge and experience can smooth the way when you apply for a mortgage.

- Andrew Crossley

Times are getting tougher for property buyers. Over the past six to 12 months, every lender has made it more difficult for investors and first-home buyers alike to get finance in one way or another.

Rates on interest-only and investment loans have increased while loan-to-value ratios (LVR) have been reduced, forcing borrowers to use more equity or savings, in many cases making it too hard to purchase another property. Some lenders now refuse to accept a loan coming to them by way of a refinance from another bank if it is a stand-alone investment loan – that is, where the principal place of residence is not involved in the transaction.

The biggest negative facing first-home buyers or refinancers who just want a better rate is the cost of living expenses that lenders are now applying to their borrowing capacity calculators. It is becoming the norm that the better the suburb you live in the more you spend, and the more you earn the more you spend: living expenses are being dialled up or down based on these criteria. In addition to this, lenders are dissecting borrowers’ lifestyles and really drilling down into basic living expenses such as food, shelter and – the biggest killer – the “extras”.

These “additional living expenses” are now preventing people from borrowing more money, perhaps because they might have a second car, private health insurance, a mobile phone, school fees, gym membership or Netflix and Foxtel. These costs are all considered voluntary expenses and will be added to many lenders’ borrowing capacity calculators.

Investors are worse off: this applies to them but also their existing debts are in many cases being converted to principal and interest payments on the borrowing capacity calculators, even though the repayments may be interest only, then a buffer rate/qualifying rate of up to 8% is being applied, even though rates can be less than 4% for investment debt.