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BIG CHANGES TO BANK LENDING PRACTICES

Recent legislative changes coupled with the effects of the banking royal commission have led to a dramatic change in bank lending practices. Our Lending Advisory team have already seen this impact – loan and refinance applications that would previously be approved are being more heavily scrutinised or declined. These changes are expected to be in place for the foreseeable future.

The good news: there are ways our Lending Advisory team can help you achieve the outcome you want. Contact The Practice early as possible to avoid any potential issues.

 

In summary:

  • Bank lending procedures in general are now much stricter than any other time in recent memory
  • Interest-only loan extensions are being declined, with borrowers forced to start paying principal and interest
  • Asset finance is also more difficult to obtain than previously
  • ‘Positive Credit Reporting’ is being introduced, which may have significant implications for your future finance applications

 

Changes we have noted:

Much stricter approval process, and more stringent enforcement of bank policies.

  • Getting finance is not as easy as it has been. Loans that would have been approved three months ago are now being heavily scrutinised, or even declined.
  • Procedures that may have been relaxed previously are now being strictly enforced. For instance, a bank recently reviewed a client’s expenditure and found a $10-per-month entertainment expense that the client had not disclosed. We have not previously seen this level of scrutiny.

Interest-only loan extensions are being declined.

  • Investors in particular, take note. Banks are now extremely unlikely to renew interest only periods when they expire – typically after 5 years.
  • This means that the client would have their current repayments automatically increased to Principal and Interest repayments upon expiry, which can be disastrous for cash flow. One client recently had his repayment increased from $1540 per month to $4665 per month – an increase of $37,500 per annum.

Introduction of ‘Positive Credit Reporting’ has significant implications for your future finance applications.

  • Under new rules coming in mid-year any adverse financial outcome – for example, late loan repayment or late payment of rates – can be recorded against your name and may affect your ability to obtain finance or to refinance a loan.

 

Tips from our Lending Advisory team:

  1. Review your interest-only loans IMMEDIATELY. There are options to extend your interest-only loan period if that is the best strategy for you, but you need to speak to us well in advance.
  2. NEVER buy a property without pre-approved finance.
  3. ALWAYS speak to us before any significant purchase requiring finance, so we can help minimise the challenges in this stricter finance environment.
  4. Allow more time than previously to obtain finance. The increased scrutiny is pushing out approval time frames, and you may need to shop around earlier in order to get the outcome you want. Ideally, speak to us 3 months before settlement date.
  5. Take steps to protect your credit report such as setting up automatic direct debits to avoid late payments.

 

WE’RE HERE TO HELP

Speak to our Lending Advisory team today regarding your residential, commercial or equipment finance needs. The earlier we get involved, the greater the chances you’ll get the outcome you want. Contact us on (03) 8888 4000 or email us.