First Home Buyer Tips

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If things weren’t already hard enough for First Home Buyers to enter the market things have just gotten harder. APRA (The regulator of our banks) has just conducted a review of the banking sector and the message from APRA to the banks is that they want the banks to make getting a loan harder not easier. While I think most borrowers perceive lenders to be fairly similar APRA found significant differences in how lenders access borrower’s ability to make payments. APRA found it was not uncommon to find some Banks lend 50% more than the most conservative lender.
So why do lenders vary so greatly?
Each lender estimates the borrowers living expenses quite differently. The higher their estimate of your living expenses the less you can borrow
Living expenses for home buyers graph APRA

The graph shows the significant differences in the level of income used as living cost as a percentage of pre-tax salary. Each lender is quite different and the figure will change depending on how many children you may have and the ages of the children can also impact your potential to borrow.

If you provide a budget of your living cost and yours is less they will still continue to use the banks estimate regardless of your own spending habits.

Some Lenders may not include all of your income and may only accept part of your income and in some cases none at all.
Chart 3: Income recognised (less tax and haircuts)

How people are paid has changed a lot over the past 10 years and to be honest the banks don’t seem to be able to keep up. If you work part time, casual, do contract work or you earn a significant amount of your income as overtime or even tax free e.g Nurses, you may find your lender will just not accept it. If they do accept it they may only do so with strict conditions.

Each lender has their own strict rules on the income they will accept and how much of it they will use to prove your affordability. Chart 3: is a graph sourced from APRA that shows one lender may only accept around 57% of your income compared to another lender accepting over 70% of your income. This makes a massive difference in how much you can borrow, or may rule you out entirely.

First Home buyers who choose an investment property as their first purchase are also affected.
Property Investor

As a first home buyer, you may have decided to buy an investment property due to not being able to get into your own home where you live due to the cost of housing.But unfortunately it is going to get harder here as well. Some lenders currently accept 80% of the rental income to use for serviceability (taking 20% to allow for cost such as rates etc) while others are only accepting 50%.

This can make a huge difference to your borrowing capacity.  It is no wonder that they can be such a big variance in what one lender will loan you compared to another. The bad news going forward is that the lenders covered by APRA are required to tighten their lending guidelines.

But it’s not all bad news for First Home Buyers!

As you can see above, not all lenders are the same and choosing the right lender is essential.  The good news is that while APRA regulates the authorised deposit institutions (ADI’s), other lenders are not covered by APRA’s tough stance and may be able to help you with more sensible lending solutions.

At Mango Home Loans, we strongly believe in ensuring borrowers are being assessed to ensure they can ultimately repay their loan without undue hardship. However, the current regulations, as well as individual bank policies regularly take away the ability to have a common sense approach. Everyone is different, people have different savings and spending habits, and their ability to repay a loan is very personal.

What first home owners need to do to make sure they are not a victim of new banking regulations!

Know what you can afford – complete your own budget and get a full understanding of the cost of home ownership, such as rates, water and maintenance. Work out how much you can afford in repayments and then speak to a broker to work out your borrowing capacity.

Speak to a broker, not a bank.

  • As you can see, banks can vary wildly in how they assess your loan from what they estimate your living expenses to be and how much of your income they will actually use to measure your ability to make repayments.
  • If you receive a decline from a bank it makes it harder to get a loan. The next lender will want to know why it was declined and will look at your deal harder. After all, if someone else has declined you, it makes the next lender very nervous. I have seen instances where the bank takes the application telling all the good news and then the client receives an approval for far less than the original application. For banks it is a numbers game, they want more approvals and will give you less money to get them.
  • Relationship building with customers doesn’t exist with banks, not anymore. In most cases where a bank manager submits a loan they are processed and approved in the same back office processing centre as they are with the brokers. The loans we complete are worked on side by side with the bank managers. As a mortgage broker we regularly have the same influence as the bank manager sitting in the branch. In some cases, our relationship can be even stronger as they get to know us better and credit officers know the quality of our clients and our submissions which makes them enjoy receiving the loans we submit.
  • The good news in dealing with a broker is we get to know you. You won’t be receiving a letter in the mail every year that your bank manager has changed yet again.  And if the need arises to move to another lender we already have most of your information on file. So for you going forward life can be a lot easier.
  • You have your own personal mortgage broker that knows you and doesn’t treat you like a number. Once we understand your full situation we go away and do the research to work out your best options. We can place you with the right lender that gives you the best chance of approval. We then follow it the whole way through; from putting your application together to making sure settlement happens without hitches.
Why choose Mango as your broker?

We have been helping Australians get into their own home since 2004. But with us it is more than just helping you get a loan. Getting a home loan is a great first step but even better is having the right strategies to get out of debt even faster.

We have helped people right across Australia get into the property market. What sets us apart? It is the strategies we can implement to help you pay your debt off faster.

The average loan in Australia is refinanced approximately every 3 years. This tells me that most people are probably in the wrong loan to start with. Most people also fail to pay their loan off over a 30 year period and instead are continually refinancing to pay for things like car upgrades, furniture and holidays. As a first home buyer if you make the right decisions now you can be in a far better position then your neighbours are in 10 years’ time. Studies completed in America found that there were significant differences in the net worth of retirees. What they found was it didn’t matter the level of income people were on, the biggest impact was their spending habits.

At Mango Home Loans we can help you create a strategy to make the most of your income and get you out of debt faster. We are more than just brokers, we are the “get you out of debt specialist”.If you would like to be given the best opportunity to get into a home and the right strategies to make the most of your income and get you out of debt faster than contact us below for your no obligation, get you in and out of debt fast meeting.