Negotiating with lenders

Posted on February 28, 2017 by ATB Chartered Accountants

Negotiating with banks and other lenders is becoming more and more complicated. Not that long ago, if you wanted to buy a property, invest or refinance, lenders would fight for your business. Now however, it is becoming more and more difficult to secure these finances.

This month, the Commonwealth Bank are no longer accepting new applications for refinancing for investors. NAB have also previously put restrictions in place for those living in certain areas. Lenders are operating with more inflexible rules than ever in order to avoid bad debts.

A great deal of lenders charge expensive mortgage insurance if more than 80% of a property’s value is borrowed. This insurance isn’t in place as a security blanket if you default however, it only helps the lender pay back the loan. If you find yourself unable to pay back the money owed, you’re on your own.

As well as this, lenders are much more cautious about measuring your ability to make mortgage repayments. Many lenders add up to three percentage points onto your current interest rate before approving a loan. So, while you may get a good deal for your mortgage repayments, for example, 4%, you will get tested at 7%.

These stricter lending rules are likely to continue into the foreseeable future, so what can borrowers do?

  1. Thoroughly research your options. There are hundreds of options available to you. Just because the Commonwealth Bank have banned refinancing, doesn’t mean everyone else has. Mortgage brokers and financial planners are a good starting point to find the best options available to you.
  2. Ensure you have your personal debts under control. A good credit rating is crucial in obtaining loans. You should also aim to have built up a good deposit or equity in other assets. Credit card borrowing limits should be cut back where possible if you don’t need them, and finally, your tax returns should show a solid, stable income.
  3. Many specialists recommend borrowers to use a number of different banks and lenders as a risk minimization tactic. It isn’t necessary to have all of your loans coming from one source, so you are able to shop around and get the best deal to meet your needs.
  4. Take a step back and analyze your situation. Are you being too optimistic with the loans you’re applying for?

Often, staying safe and taking the time to improve your financial situation may help in the short term to plan your next moves.
It is important to remember that rules and trends in lending change often, so it’s important to stay updated.