The Finance Trap
With the Royal Commission into the financial services sector, last year more people than ever have struggled to get finance. Our advice is to allow more time to secure finance and make sure when you do have pre-approval that it’s in writing and you confirm the pre-approval just prior to purchase to ensure you are still able to buy at the amount under the same conditions.
As we reflect over the past 12 months, the playing field in finance has changed with the constantly shifting goal posts from finance lenders, making it extremely difficult for investors and homebuyers to purchase property.
This year more than ever the finance lenders have been closely monitoring their conditions and the finance approvals, which in the past, many people have taken for granted.
We had heard some horror stories recently where people who bought unconditionally at auction discovered on the Monday after auction that their finance actually wasn’t approved due to lending changes from the time they first had approval to the time they purchased.
One of the solicitors that we work with has been involved in a number of off the plan settlements and due to the finance changes and the drop in the market, those properties that were purchased 1-2 years ago are no longer worth the same amount today. As a result, many people have had to either come up with the additional funds or forego the property altogether and lose their deposit as well as risk further litigation.
This is one of the reasons why we encourage people to firstly do their home work, secondly make sure the finance is locked in for the type of property and location they are buying and that they have their finance approval in writing and thirdly if they do buy off the plan to buy something in a smaller block that is not or not likely to be over-developed.
One recent client, who had pre-approval for finance had told his broker that he was looking to buy an investment property and the broker assumed that he was just looking to buy in metro Melbourne and did his process based around that. What the client failed to mention was that he was also considering regional areas as well.
Once we were engaged to assist him, part of our processes is we speak to the broker to ensure everything is in place, finance is fully approved and are there any conditions attached that would prevent us from purchasing a property. In doing this we discovered the broker hadn’t allowed for a regional property and so we had the broker adjust the application accordingly before we started our search.
This process averted any major cost for the client further down the track and it gave us all peace of mind knowing we could move forward to purchase a property in a regional area.
Many people assume that when finance is approved they can buy anywhere and anything as long as they stay within the limit, however this is not always the case. With all the current changes in lending purchasers need to make sure they fully disclose all details to their finance advisor, such as any zonings or overlays that may affect the lending capability, eg flood, fire, erosion zones.
The above can help purchasers to avert any financial disasters where they are left holding a property that puts them under financial stress.
Some of the lessons that have come out of this year with the Royal Commission is that planning is paramount.
Be upfront and honest with your financial advisor and don’t assume that they are all the same. It is more important than ever that you only deal with reputable mortgage lenders. Any finance person who is prepared to cut corners for you should be a warning sign that you need to steer well and truly clear of them.
Our best tip for all purchasers would be to engage a good team of professionals, from a finance broker to an accountant to a buyers advocate and to a solicitor as all of these people will be able to steer you in the right direction and help you successfully achieve the outcome you want.