Summary: Podcast Transcript Shannon Molloy: Many things changed in the wake of the global financial crisis. That dramatic wake-up call saw banks reign in their lending practices almost overnight. Lenders adopted a more cautious approach to the sort of person they’d lend money to. And it’s been one of the lasting consequences of the GFC. Does this more conservative climate make it impossible for would-be investors on low incomes to crack into the market? Not necessarily. In this month’s issue of Australian Property Investor magazine, we explore ways to buy on a five-figure salary. Plus we meet five investors who’ve done just that. For more on this topic, we’re joined by Mitchell Watson who’s a senior financial analyst with Canstar. Mitchell, thanks for your time. Is the current lending landscape still pretty conservative, or are banks beginning to ease their expectations? Mitchell Watson: I think if we compare now to four years ago, prior to the GFC, it’s most definitely more conservative. We don’t see 100 per cent or more loans being provided anymore. The most you can generally borrow is around 95 per cent, so it has come back considerably. The expectations, whether they’re more conservative, will vary from lender to lender. Some may be more strict while others won’t make you jump through as many loops. Your credit card, they might require six months worth of statements as opposed to one month worth of statements, so there are little things that will differ. SM: How important is a borrower’s salary when it comes to securing finance for a property? MW: It’s definitely one part of a larger picture but the main focus of that picture. Everything comes out of your salary or income, so the greater buffer you’ve got after taking into account your living costs, the greater chance you have of receiving approval and your borrowing power also increases. The greater your buffer, the more you’ll be able to borrow. SM: Do lenders still want to see evidence of a genuine savings history? MW: Some most definitely will still look to see that you’ve been able to build up that five per cent of genuine savings history. That will vary from lender to lender. Other things they’ll take into account if you’re unable to satisfy that are things such as rental payments or other loan (repayments). The willingness to accept that will once again vary. SM: And what are some of the other characteristics that might come under the microscope? MW: Things such as your employment stability, so how long have you actually been at your current employer and what is your level of employment. Is it part-time, full-time or casual? They’ll also look to see your financial history or how you look financially. That’ll include your credit card – how much is outstanding and also your credit limit. They’ll look at whether you have a car loan. One of the big things is around your living costs, so if you’re a family unit your living expenses will obviously be higher than a couple or a single person, so your borrowing power might not be as high. SM: Serviceability seems to be a key theme here. What should a would-be buyer do to ensure they’re able to meet repayments? MW: I think budgeting is the key thing here. It’s looking at what are your incomings and outgoings, and understanding your own financial situation. It’s also looking at what you can realistically afford after taking into account your living costs. The way to look at it is if your loan repayments take more than 30 per cent of your taxable income then you’re generally classed as in mortgage stress. SM: If someone satisfies the criteria but has a limited budget, what should they do to get across the line? MW: To get it across the line, it’s really about cleaning up your financial situation. If you’ve got credit cards, remove those. Any other debts, clean those up. The less debt you have, the greater capacity you have then to make other repayments.
