Finance is one of the most talked about topics in the media of late, with much of the commentary negative.
One day we’re reading about housing finance falling to record levels, and the next we’re learning all about the profit plunges recorded by our biggest lenders.
The latest was ANZ, which posted a five per cent profit slide recently.
In a story in The Age, ANZ chief executive Shayne Elliott said the main reason for the parlous results was the continued fallout from the royal commission.
He went further by predicting the pace of home loan growth to fall to an all-time low after three decades of record rates of mortgage debt.
“We’ve had 30 years where home lending has grown, for most of that, double-digit every year, and more recently at five to six per cent.
That’s an extraordinary market growth over a period of time, and we’ve all become used to it, we just don’t think that’s sustainable.
We think that that will be much more subdued,” Mr Elliott said in the story.
He also said that the tighter credit conditions meant that the amount that banks would lend borrowers had fallen by about $110,000 or 20 per cent in the past three years.
What does it mean in real life?
I’ve written thousands of words about tighter lending conditions over the past few years.
First, there was the handbrake applied to investor lending and then it was interest-only loans in the firing line.
Then, courtesy of the royal commission into the banking sector, the added scrutiny on their lending practices meant that the screws were tightened even further on potential borrowers.
The difference today is that it can take more time and it does involve a bit more paperwork.
The days of easy credit, where information was pretty much taken at face value, are gone for the foreseeable future, in fact let’s assume forever.
Now more than ever, borrowers need to present a clean application as well as make sure they are targeting the most appropriate lending products from the outset.
Of course, we do that for our clients every day of the week, because we understand their unique requirements as well as the loan products that will be the best fit for them.
How to secure finance today
So, to quote the ANZ chief, the $110,000 question is how do you secure finance today?
One of the easiest things to do is to work with an expert team who live and breathe lending.
The next step is to have a handle on your true living expenses – not some random figure that you “think” you spend every month.
Creating and keeping to a budget will ensure that you are living within your means, and that if a lender wants to double check your living expenses there are no nasty surprises lurking behind all those Uber Eats orders.
Another strategy to consider, for investors especially, is that lenders like principal and interest loans especially at the moment.
So, if it’s the difference between a “yes” and a “no”, then you should consider whether this type of loan might be the right vehicle to secure an investment grade property during a soft market.
Another idea is to put your savings and extra cash into an offset account so that you can build up a deposit as well as show a potential lender that you are a saver rather than an impulsive spender.
Finally, sometimes the best strategy is to sit tight until your finances are in better shape and lending conditions have become more favourable.
That’s because, the market is a slow-moving beast, so delaying a purchase by a few months, or even a year, is always better than getting in over your head.
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