Picture this, you’ve found the perfect property to invest or live in, it’s well within your budget, you have your finance pre-approved, so you go ahead and make an offer. The vendors accept and you are over the moon. You pay your initial contract deposit and then it’s a matter of waiting the 6 weeks until settlement.
Everything is fine until, as settlement approaches, you realise you haven’t heard from your bank.
Eventually, the settlement date arrives and your bank has still not approved the settlement. The vendors then withdraw from the deal and instead sell their property to a different buyer. You lose your deposit contract and, depending on where you’re located, you lose your entire property deposit too.
Sounds like a nightmare come true right? That sort of thing couldn’t happen, could it?
It can and does happen
Just ask the Qld couple who recently lost their entire $75,000 home deposit, purely because their bank wasn’t ready for settlement in time. The couple did everything right at their end, but their lender let them down. And in Qld, there is no grace period for these sorts of situations as there are in other states. The vendor resold the property for more money and then kept the $75,000 initial deposit from the couple, which while harsh, was money they were legally entitled to.
This was one of a number of tough tales, especially during the time after Covid when interest rates were super low. Everyone was in a race to spend their money on property and banks were unable to process loan applications fast enough.
Is it still a problem?
Banks may not be under as much pressure to turn high volumes of loans around now that interest rates have shot up, but multiple rate cuts are predicted in the near future, which could boost demand again.
It’s worth incorporating loan settlement times into general research and due diligence when researching banks, alongside other criteria such as interest rates and loan features.
Quick settlement can be the difference between being able to seize an opportunity and missing out to someone else. Investors who know they have a faster loan approval time can negotiate with confidence.
How long should it take?
Generally, a loan application takes 4 to 6 weeks from when you apply to when the property can settle. This is why a standard property settlement period is 6 weeks. It’s at the upper end of the guideline period. The big problem during the Covid buying frenzy occurred when some banks’ approval periods blew out from approx. 25 days to more than 40, which put a lot of people at risk.
Don’t get final approval confused with pre-approval. Pre-approval is the amount a bank believes it will be willing to lend you. Pre-approval only takes a few days and you can then go to market with an approximate spending budget.
If your situation changes between pre-approval and settlement, however, it can mean all bets are off. Say you lose a job, or interest rates go up, the bank can still then refuse final financial approval.
The good news
Necessity is the mother of disruption in the finance world and a number of digital only start up lenders made approval times a key focus in order to win business from the big banks. Some of the big 4 have been caught out with outdated systems and technology, plus legacy practices that new lenders weren’t bogged down by.
There are more than 130 different home loan lenders in Australia now, according to Canstar, with more than 450 loan products. There’s no shortage of choice, so it’s much more likely you will find what you need out there if you know where to look. Some lenders will be able to process your loan application in a matter of days, you just need to make sure the rest of their features and their interest rates work for you too.
It’s a minefield out there, which is where Zinger comes in. Engage one of Zinger’s brokers and they’ll be able to tell you in no time what products will be suitable for your situation.
Get in financial shape
A bank may have a fast final approval period, but your application can still take longer due to various complexities. Your lender may need to come back to you for additional information, or may need to discuss specifics of your situation with its credit department. You may be self-employed, have a shaky credit history or be looking to buy in an area where the bank feels it may be overexposed to risk.
To speed up your application, be well prepared with all your financial information in order, maintain a strong credit score and, if self employed, get everything you can together that shows you generate a steady and consistent income.
