Real estate analysts agree that tightening credit is a key driver of the house price decline across the country.
With banks now scrutinising loan applicants’ finances even more closely, preparation is the name of the game.
Gone are the days when you could casually walk into a bank and come out with a home loan minutes later.
Helen Collier-Kogtevs, property investor and educator from Real Wealth Australia told Auction Day you need at least 90 days to get bank ready.
You can choose to gather your paperwork and apply straight away, but you run the risk of being declined, she said.
Lenders want to see a minimum of three months financial history to see how you manage your money.
“It’s best to take the three months to plan and prepare so the bank is just ticking boxes, because ultimately what banks like to see are patterns of behaviour and good habits,” said Collier-Kogtevs.
The top 5 red flags
- A habit of withdrawing and spending money on pokies, casinos and online gambling
- Regular use of ‘buy now, pay later’ services like Afterpay and ZipPay
- Unsubstantiated large cash transfers
- Dishonour and late fees
- Excessive dining out, Uber Eats and shopping
To ensure that your finances steer clear of these red flags, Collier-Kogtevs’ solution is simple.
She advises creating a budget and savings regime, focusing particularly on social spending like gambling and excessive eating out.
For those that love online shopping, she warns “Afterpay will kill your chances of getting your loan approved”.
Afterpay is a debt trap for shopaholics, Collier-Kogtevs says, and banks see Afterpay as the opportunity for you not being a good money manager.
If you can’t explain to the lender large cash transfers above $500 or $1000, banks feel something is amiss.
Financial habits that get your application rejected
There are common credit issues that many people fall foul of.
When it comes to declaring living expenses, be honest and make sure it matches what is on your statements.
If you have large amounts of unsecured debt on credit cards, store cards, personal loans or things like Harvey Norman cards, deal with that debt first before applying for a loan.
“All that unsecured debts says you are fluid with your money and you’re not really responsible and you could easily access all this unsecured debt.
“It makes the lenders quite nervous.”
Patterns of poor credit management and even certain descriptions of money transfers can cause alarm for assessors.
“There was a young man who had his mate come over and stay for a few weeks who was sleeping on the couch.
“He said to his mate, ‘Hey you’ve been sleeping on my couch for a couple of weeks now, how about you pay for electricity or food. Can you pay me something?'”
The friend transferred the money, but in the description box wrote “for drugs”.
“So on his bank statement, with the $100 transfer it had “for drugs”. So you can imagine the assessor looking at that. These are some of the silly things people do.”
To rectify these issues, Collier-Kogtevs said it takes generally three to six months.
If you are in arrears on your home loan you will need to show six months of good conduct. If it’s unsecured credit and or bad spending habits, banks generally like to see three months of good financial behaviour and patterns.
Late or missed debt payments as well as unexplained large cash withdrawals are other behaviours that set alarm bells ringing for investors.
- Gambling alone can have the most major impact on your spending habits. If you’re a gambler, get help to stop now.
- Create a budget and stick to it. Look at all your bills to create additional savings.
- Review your credit card limits and reduce them to under $5000 or cancel them
- Pay your credit card in full each month, otherwise you are living beyond your means
- Pay your bills on time, every time
- For incidentals withdraw cash (such as $100 per week) to purchase coffees, dinners out and drink and stick to it.
- Regular unsubstantiated withdrawals will be questioned.
- Keep up the good spending and savings habits for three months prior to applying for any loan.
Watch the full interview for Helen Collier-Kogtevs’ advice on getting bank ready in 90 days.