Properties are selling quickly and prices are on the increase, but a leading mortgage broker warns it is still important not to be pressured into buying in haste.
Property Education Company CEO and mortgage broker Louise Lucas warns investors and owner-occupiers against becoming caught up in the rush to buy and ending up with something that doesn’t suit their circumstances.
Lucas, a recent guest presenter on a webinar hosted by Hotspotting, says the first step in buying, whether as an investor or owner-occupier, is finding out how much you can afford and to look at your financial situation objectively.
“That’s one of the things that is absolutely key,” she says.
While it is an enticing time to get into the market, as interest rates are incredibly low and owning your own home can be much cheaper than renting, it is still essential to undertake the process with care.
Lucas says a recent survey revealed two-thirds of millennials had buyers’ remorse because they felt they had paid too much for a property, or they didn’t factor in the maintenance costs, rates or body corporate fees.
“They were unaware of those costs and found them to be too high and so they ended up feeling uncomfortable about it,” she says.
Hotspotting founder Terry Ryder warns that, while prices are rising across the board, many people are buying in the wrong places – locations which won’t give them long-term price growth – or paying too much.
“People from Sydney and Melbourne are looking at some of the regional prices, thinking ‘that’s cheap’ and in fact they are paying too much in terms of local values,” he says.
Lucas says it is important investors buy with a long-term view to hold for 10 to 20 years.
“That’s what real estate investment should be,” she says.
She says investors should talk to a mortgage broker first, before they try the banks, to assess how much they can afford to borrow. She says pre-approvals from banks come with so many conditions, they aren’t really worth the effort.
“There is no guarantee the bank will make that loan offer, once you find the property you want,” she says.
“What you need is a good broker who has assessed you and your situation.”
Common areas where investors came unstuck in obtaining finance are when they receive pre-approval for a loan and then stop keeping an eye on their finances.
“Absolutely, categorically, do not go and do anything that will change your credit position between the time of your pre-approval and the time you actually buy the house,” Lucas says.
She says people buy cars or get new credit cards, which can change their situation in the eyes of a lender. One applicant gambled with his deposit because he thought he was safe with a pre-approval in place.
Banks can use these changes in circumstances to ultimately refuse a loan application.
Lucas says changing jobs is also a big issue for banks as many new positions come with a probation period and banks won’t lend to the applicant even if they are earning more money while on probation.
“When you go in for pre-approval, one of the things I want you to consider is to keep yourself clean for three months,” she says. “Don’t do anything that might upset your accounts.
“Please, please, pay your bills on time. People don’t realise that paying a day or two late indicates bad conduct to a lender.
“Banks don’t want to see you not being able to pay your bills on time. They want to see you always keeping your accounts in the black.”
“A good broker does help with these sorts of things.”
Lucas advises anyone looking to buy as an owner-occupier or investor to visit mycreditfile.com.au which shows your credit history.
Once that money is approved Lucas warns buyers not to feel badgered into making a deal because of the hot market.
Louise’s challenge to you is to get your finances in order:-
Key Things To Sort your finance now
- Do a credit check at mycreditfile.com.au – you can get it for free
- Clean up your accounts so the last three months are low spending before going for a loan, no online betting, no tatts, no large transfers that need to be explained and no large cash out.
- Do cancel any Afterpay or Zippay – you might think it’s free but over 20% of people don’t pay on time I gather. How about saving up for something – this will make you feel better!
- Do not take out a car loan or even pay one off prior to getting a loan assessed – let the broker help you decide which way to present this to a lender as it might be better to have a larger deposit.
- Try not to change jobs in between going for a pre-approval and buying a house.
- Note most pre-approvals are automatic and simply a credit check on the information presented – make sure what is presented to the lender is correct – do not miss including any credit cards or other credit such as HELP Debt that needs to be declared.
- Build in a buffer in your finances so you always have capacity for issues that arise.
- RUN YOUR OWN RACE – this means you buy what you can afford – not what the market or an agent thinks you should pay.
If you require any further assistance, please feel free to call Louise Lucas on 0412 709200.