Here we are at the pointy end of the year already. And 2021 was a crazy one. Just as people spent the year going in and out of lockdowns, worrying about vaccines and facing financial uncertainty, property markets boomed all around the country.
If you were looking to buy, the year may have gotten away from you, and it’s too late to buy now if you want to settle before Christmas.
But don’t treat the end of year holiday period as the off season. Think about what you can do for the rest of this year, to make sure you’re ready to come out firing in 2022.
Your own personal stocktake
Take some time to look back at your year. Have you lived your best financial life? Giving yourself a financial health check can be a great way to prepare to start the new year on the front foot.
Start by auditing your bank accounts, loans, insurance cover, superannuation, credit cards, energy deals and anything else that may be affecting your borrowing power.
Within each of these products and services, ask yourself if you are paying unnecessary fees, or interest rates that are too high.
Chances are that if you have been with the same bank, energy company, or insurer for more than a year, you are not on their best deal. These guys are notorious for giving the best prices to new customers to win them over and leaving loyal customers to pay a “lazy tax” by just continually renewing without doing any due diligence.
Once you’ve identified wastage, you need to take action to fix the leaks. Demand better deals from your providers or threaten to leave them for a competitor. It’s amazing how many lenders and energy companies are able to magically come up with a better deal for you once they believe you will walk. Customer retention is as important to them as recruitment of new customers.
Credit where it’s due
Credit scores are all the rage nowadays for lenders looking to spot a bad borrower from a safe bet.
Is it possible you’ve defaulted on a payment in the past? Even just been late on a phone bill? Or someone else could have screwed you over…maybe a flatmate didn’t pay their rent on time. If you were both on the lease, this may have affected your credit rating too.
Your credit score will usually range between 0 and 1200. The higher your score, the better when applying for a loan. Your credit score is calculated by matching your basic personal details with the type of credit providers you’ve used in the past, the number of credit enquiries (such as loan applications) that you’ve made, the amount of credit you’ve borrowed and any blemishes on your repayment history.
You can access your credit report for free from reporting agencies such as Experion, Equifax and illion; or from certain comparison providers such as CreditSimple, Finder and Canstar.
If your score needs improvement (you want to be above 600 to be average, 700 to be good, 800 to be very good and 850 plus to be excellent), you can improve your score over time by getting rid of credit card debt (and preferably the card too) and making all existing repayments on time.
Start the conversation early
You need to be up to date with the latest intel when it comes to borrowing for a property.
What are the rates on offer now? What are the turnaround times on loan applications? Is it worth getting conditional pre-approval now rather than waiting until it’s time to buy?
The Australian Prudential Regulation Authority (APRA) recently intervened in the house market to slow what it saw as a concerning level of debt exposure by Australian borrowers. APRA expressed concern that around 1/5 of recent loans had a debt to income ratio (DTI) of more than six… i.e. a household was borrowing more than six times its annual income.
As a result, a number of banks now have caps on their DTI limits of six or seven, which may mean you are no longer eligible for a loan that you thought you were.
APRA also informed lenders that they must assess loan applications with a 3% repayment buffer, increased from the previous 2.5% buffer. The buffer is in place so that lenders can see if you would still be able to service a loan if interest repayments went up. So now the required buffer is bigger, are you still eligible to borrow as much as you thought?
You can get answers to these questions by speaking to Zinger Finance Mortgage Strategists and getting your finances sorted so that when real estate agents and solicitors are back from their holidays early next year, you’ve got the jump on the competition.
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