Lenders are likely to be looking for bigger deposits, more detail on living expenses and a common-sense approach to saving as they tighten their belts on home loans, experts say.
Some lenders have already imposed stricter standards – particularly for investors – in the wake of a crackdown by the Australian Prudential Regulation Authority (APRA).
The crackdown could reduce homebuyers’ borrowing power by up to a third, according to analysts.
APRA wants the standards for underwriting mortgages tightened, such as tests of income, expenses and loan serviceability buffers.
However, while the crackdown could make it tougher for investors, some lenders have already cut rates for owner-occupiers.
“With the tightening, probably a lot of it’s been taken out of the banks hands,” MLC Advice Canberra financial planner Michael Miller says.
Play the field
Mr Miller says the main thing would-be borrowers should do is talk to a number of different lenders – either directly, or through a mortgage broker.
“In the past, if you were a well-qualified borrower, all of the institutions would line up to do business with you,” he says.
“But now one bank may say no just because of their internal constraints (such as limits on investor lending).”
Save, save, save
A demonstrated savings pattern, and a larger deposit, will likely make you more attractive to any lender, Mr Miller says.
“Having a bigger deposit will certainly help. I think some of the lenders are starting to even require a 20 per cent deposit for an investment property. It does vary quite a lot.”
If you have a smaller deposit, you might still get a loan – but only have the pick of two or three lenders, Mr Miller says.
Be a spendthrift
Cheryl Winn, a broker at Citiwide Home Loans, says lenders are now being forced to be more accurate on their clients’ living expenses, rather than using a standard formula.
Higher living expenses impact on your borrowing capacity, so Ms Winn says it’s wise to cut out anything that you’re frittering away your money on.
“Are you wasting it (your money) on a gym membership or a Netflix membership – if you haven’t turned on Netflix for three months?”
Ms Winn says many people forget that costs such as health insurance and private school fees need to be taken into account when applying for a home loan.
Honesty is the best policy
Ms Winn says borrowers need to be more upfront than ever, and should provide as much information as they can – not just what the lender asks you for.
“Make sure you’re telling your broker or lender what your super accounts are, what your other assets are,” Ms Winn says.
If there’s a reason you have a highly paid job but minimal savings – perhaps a divorce – tell the lender.
“The more you can tell them and give them the full picture, the more likely you are to be approved,” says Ms Winn.
Be a credit to yourself
As always, ditching as many credit cards as possible will boost your borrowing power. Ms Winn says many people take out numerous cards to cash in on Frequent Flyer points, failing to consider the negative effect come borrowing time.
Likewise, interest-free payment plans, car leases and personal loans, child maintenance obligations and university debts all reduce the amount you can borrow to buy your home, says Ms Winn.
The biggest no-no
Ms Winn says a spontaneous buy – either of an investment property or home – is definitely a no-go if you don’t have a bank’s pre-approval.
– with AAP