Based on the recommendations handed down, we have already seen a number of changes that have a significant impact.
Firstly, the banks are scrutinising every single application with great due diligence and as a result, finance is taking an increasingly longer period of time to be approved.
Where many of our clients used to obtain approval within 14 days of signing a contract, we’ve seen a huge number of extensions sought and 21 days is often required for the application to make its’ through to the end of the application process.
Sometimes it’s taking more than 21 days for finance to be approved and right now, we have a client that has had his finance application submitted for more than 5 weeks and still hasn’t received an answer either way.
Whilst we suspect the finance broker might have been a little more diligent with submitting all relevant paperwork, the final process is apparently now at the “final stage” but it’s taken 2 weeks to get to this point and our purchaser is still none-the-wiser.
Secondly, we’ve seen plenty of evidence of banks scrutinising the spending habits of their potential future clients and if you’ve heard rumours that there have been clients rejected on finance based on the fact that they purchase too much ‘Uber Eats’ and their discretionary spending is higher than the banks would like it to be, I can confirm to you that this story is completely true!
If you estimate your food expenses to be $100 per week and when the bank goes through your bank statements and totals your weekly food expenses to be closer to $200 per week, there’s every chance that this may affect your chances.
I have been told (very reliably by a finance broker that I know very well) that a client of his was rejected based on the fact that he makes a few ATM cash withdrawals from the Treasury Casino and the bank was concerned that he may have a gambling problem, hence provided a high risk for a possible default on his loan.
The reality was that this client worked in a Government job in George Street and often used the nearby ATM to withdraw cash for his lunch…but the bank would not reconsider his application when he could prove this to be true.
Thirdly, the banks are performing more ‘desk top valuations’ in order to ascertain how much money they would lend a client based upon the home’s location and recent comparable sales.
Only two weeks ago, I had a buyer willing to pay $900,000 for a home (that would have been acceptable to the owner) but before any finance application was lodged (and even before an offer was signed), the bank told the buyer that their ‘desk top valuation’ was only $845,000 and that the buyer was entitled to borrow 90% of this amount (in other words, they’d need to find another $55,000 themselves to complete the transaction) despite the buyer pleading that he was prepared to pay $900,000 as he thought the home was worth it.
Based on previous sales within the street, the highest previous price was $780,000 and as such, the bank saw the property to be too much risk for the area…despite not even engaging a professional valuer to set foot inside the home in any capacity.
My team and I have lost two deals on finance within the past couple of weeks and because we’re experienced and politely ask the buyers the right questions to ensure that they aren’t wasting their own time, let alone the time of our sellers, we would probably average only 2-3 deals per year crashing because the finance couldn’t be obtained.
One thing that I’ve mentioned before is that a buyer that heads into the bank and walks out 20 minutes later with a ‘Finance Pre-approval’ doesn’t mean anything at all.
The banks hand these out frequently based upon a simple calculation of affordability and deposit but often haven’t yet considered the client’s levels of debt, other financial commitments, stability of income, the actual property they’re looking at purchasing etc. so just because a buyer says that they have a ‘pre-approval’, this doesn’t mean that their finance is a foregone conclusion.
Next week, I’ll discuss a little more about finance and show you some statistics that will show you just how rapidly the changes have taken effect…and how these changes have significantly affected the real estate sector.
Until then, Happy Listing & Happy Selling.