Over the past two to three years, the lending environment has dramatically changed in Australia.
Branch principal and wealth manager at Yellow Brick Road Geelong and Torquay Isaac Baker said that the banks are now looking for more supporting documents around income and savings to confirm an applicant can afford the loan they are applying for.
“This is due to a number of economic circumstances, particularly to avoid a housing crisis like we saw in America in 2008.
“An estimate I would say is that if a family could borrow $600,000 two years ago, they can only borrow $450,000 now.
“The banks are now assessing customers at a higher interest rate so if interest rates were to increase in the future, they will still be able to afford their home loan, this, however, has decreased a lot of people’s borrowing capacity.”
However, that doesn’t mean first home buyers should lose heart and Isaac recommended potential first home buyers need to research as much as possible before they apply for a home loan.
“It is very important to speak to a bank or mortgage broker as early as they can, so they can get familiar with what is needed to get a home loan approval,” he said.
“The most important parts to the approval they should be focusing on is income and savings, and avoid any liabilities, for example car loans and credit cards, as these can reduce their borrowing capacity.”
Isaac said that whether you want to buy an established home or build, your borrowing capacity will remain the same, however building has the advantage.
“First home buyers can receive the $20,000 grant if they qualify which can make it easier to gain finance.
“As a first home buyer, I would always look at building as an option first due to this which can make getting a loan easier.”
Geelong Homes general manager Andrew Carroll recommended that first home buyers consider the bigger picture before they start shopping around for property or finance.
“Every first home buyer should write down their needs now, and their needs in five years’ time, then look at a house, whatever that house is, and its floor plans, and think about that house for their needs in five years’ time not today,” he said.
“From there, go through that financial discussion, look at what houses are out there and what specifications they have.
“My advice for a first home buyer is really, really understand the products that are going into your home.
“If you are comparing price, look at the longevity of the inclusions and products being used by each builder, it’s a value proposition, if I’m going to have to spend this money in five years’ time, why not spend the $5,000 more now to save money in the long run.”
Geelong Homes sales consultants can also provide support for clients seeking finance to build their home, and have a list of trusted, reliable mortgage brokers on hand.
“We don’t take a referral fee, we do it for good service not for a monetary sense, unlike other builders who may take a referral fee from brokers,” Andrew said.
“For us, if it’s an easy company to work with, and if they give our clients a solution and can help them, that’s what it’s all about – good work and solutions for our clients.”