Thinking about what’s for dinner? … so is your loan assessor
8 min read
There is a suite of things you need to prove to a bank or other lender to secure pre-approval to bid at auction. So, what’s the best way to get the green light from the bank to raise the paddle?
A broker who can help you navigate the financial landscape is critical. But financial housekeeping at home is the first step. So, log out of your home delivery app and warm up last night’s leftovers!
Why do I need pre-approval to bid?
Different to private treaty sales, buying a property at auction provides you with no conditions. That means you have the finances in order to settle the purchase and you’re prepared to accept the property’s condition. There can be, on occasion, some negotiation with the seller regarding the settlement period.
If you’re able to pay cash for your auction purchase, there’s no drama. But if you need a new loan, or need to refinance, to secure the funds to purchase, you’ll need pre-approval.
What do banks want to know about spending?
During the Hayne Royal Commission, one of the issues that got a lot of air time was how customers’ living expenses were assessed. The Household Expenditure Measure (HEM) has been the popularly-used way to find out if someone can service a loan. It’s based on data from the Australian Bureau of Statistics.
In short, it compares an individual’s expenses to the average monthly living costs in Australia: $2,385 per single person; $4,118 for couples; and $5,378 for a nuclear family.
The estimates are derived from a whole host of expenses including groceries, transport, utilities and discretionary purchases as well. It can be broken down to your particular area, as well, comparing your estimate to that of someone with the same number of dependents. The lender may then take the higher figure – either the HEM estimate or your own declaration – in their assessment of your ability to pay back the loan.
But in the post Royal Commission, loan assessors are delving much deeper … MUCH DEEPER!
Getting financially fit
Assessors are the new forensic detectives and notice all withdrawals on bank statements. So, when your home delivery habits leave your bank statements reading like a suburban restaurant directory, you have a challenge. BUT ALL IS NOT LOST!
Make a commitment to reduce discretionary expenses, now. The silly season is not far around the corner where you’re more likely to be opening the wallet or purse more often.
Think about having a coffee at home rather than the coffee shop; staying in and cooking on a Friday night; catch public transport rather than a rideshare – or better yet, walk or cycle.
You – and your spending habits – will be so much better for the effort.
What else do I need to provide?
A loan is a formal document. You’re entering into a contract with a bank or other lender so there are standard documents you will need in addition to the standard 3-6 months worth of bank statements:
- Proof of ID: Driver’s licence, utilities bills etc
- Employment and income: contracts or regular payslips (if you’re self-employed, the process is more stringent – talk to us on how it works
- Savings: the ability to save is important, protecting you in the event of loss of income or other rainy day.
- Details of current debts: car loans, personal debts, business loans – the onus is on you to divulge all your other financial commitments
At Entourage Finance, we make the process easier by allowing our clients to upload their documents directly to our system, saving time and errors through double-handling.
What’s the rush?
There’s no rush – buying property should be carefully considered and supported by research.
But pre-approval allows you to be nimble and prepared should an opportunity arise. Most lenders have a 3 to 6 month window of time in which you are approved to borrow to purchase for an approved amount.
That window closes because the personal circumstances for the person or the marketplace can change in that time.
So, if we take Melbourne as a case study, there was a 75% clearance rate across auctions hosted the weekend after the AFL Grand Final. That clearance is comparable with the weekends of the boom in 2015-17.
But, what’s driving the activity is the shortage of listings? The volume of properties for sale in Melbourne was 5.9% lower in September than it was 12 months earlier.
And the situation for borrowers a year ago was much different:
- the cash rate was 0.75% higher
- median suburb prices were still in decline
- changes to property investment were still on the table
So that means there are more competitors at auction, wanting to capitalise on newfound conditions for buying. If you’re pre-approved, you’ll be able to bid with confidence and certainty, providing you with a better chance of landking the killer blow at auction.
The team at Entourage can help you get ready to bid at auction this selling season.