I was talking to one of my clients the other day, who told me that he’d be looking to increase his mortgage in March next year so he could buy a larger property for his growing family. “So, I’ll contact you in February,” he said. “Wrong!” I told him. “We need to get talking now, prepare all the paperwork, carry out the analysis and have the approvals in place, so when you do find a property you like, you’re ready to go.”
My point is, that despite the relaxation of lending criteria in the Credit Contracts and Consumer Finance Act (CCCFA), applying for a mortgage and getting approval isn’t really any easier, and there are still several hoops you have to jump through before it’s approved.
While some requirements have been relaxed, banks still conduct detailed spending analyses (no more smashed avocado!), and stress testing remains a crucial part of the approval process. Your ability to navigate the lending criteria is what truly counts if you want a loan, the relationship you have with your bank, not so much.
What does this mean for you as a borrower?
If you’re applying for a mortgage, start planning early – ideally three to six months before you need any financing. This gives you time to address any potential issues that might arise during the assessment process. Like my client, we regularly see people who want to buy a house “next year” and think they can wait until then to start the process. Of course, you can wait. But going through a complex process in short timeframe to buy an item that is often charged with emotion (like a house) is the definition of stress. My advice? Start now.
Our approach has been to work with clients to analyse their spending patterns in detail. We pull apart their costs, show them where their money is going, and give them options to adjust their spending. We often find that, when faced with the facts about their spending, some clients are really surprised by how much they do fritter away. I promise you that this is not a judgemental process either! Instead, it’s about revealing what financial levers you can pull and what the consequences are when you do so. That approach puts the power in your hands, you get to decide the end result according to what you’re willing to do, adjust or tweak. It just so happens that this approach fits perfectly within the responsible lending regime, resulting in a 95% approval rate for our applications.
The key to success in today’s lending environment isn’t trying to circumvent the regulations – it’s working intelligently within them. By understanding your spending patterns and making necessary adjustments early, you put yourself in the best position for approval when you need it.
Remember, while the CCCFA changes might streamline some processes, the fundamental principles of responsible lending remain. The best strategy is still to plan ahead, understand your spending, and be prepared to demonstrate your ability to service your loan. That’s what really makes the difference between approval and decline in today’s lending environment.
Top tips when applying for a mortgage:
- Start planning three to six months before needed changes.
- Get an early lending assessment to identify potential issues.
- Prepare a detailed spending analysis.
- Be ready to demonstrate a commitment to changed spending habits.
- Work with mortgage advisors to understand the best approach within regulations.
- Address spending patterns and debt early.
An aside
As an aside, I find the CCCFA changes particularly interesting because they’ll most likely benefit non-mortgage borrowers seeking small loans. This is ironic because this group was precisely who the original legislation aimed to protect. The CCCFA was designed to make it harder for vulnerable borrowers to get small loans from dodgy lenders charging exorbitant interest rates. If making the process more difficult helps protect this group, then I’m all for it!
Whether you’re ready to get the ball rolling or just have some questions about the process, you can contact me here.
