The use of preapproved home loans surged by 40% since September 2018, as more buyers seek ways to circumvent slower property settlements caused by weightier banking regulation, according to finance broking firm, Our Broker.
“The changing landscape of lending policy in the wake of the banking royal commission and shifts in the property market have reignited the value of preapprovals for prospective Australian homeowners,” says a past president of the Mortgage and Finance Association of Australia, Tim Brown, Senior Consultant, Our Broker
A pre-approved home loan refers to a statement from a lender conditionally approving or denying a loan before a buyer or investor begins hunting for a house or apartment. "The lender checks your finances and assesses whether you'll be able to repay a loan successfully," says Mr Brown.
Add a preapproved home to you New Year’s resolutions
A mortgage broker such as Our Broker can organise a conditional approval, and “we’re urging more homeowners and investors to get conditional approval in place in 2019 before they start a search for a property," advises Mr Brown.
The 40% surge in conditional approvals is attributable to several factors, notes Mr Brown, including the need for speedier application processes to ensure buyers and investors don’t miss out on favourable properties.
“A home loan preapproval should be part of your new year’s resolutions if you intend investing or buying a property in 2019, especially as a conditional approval in January will give you until the end of March to find a suitable property.”
Faster property settlements
“In a slower market having a preapproval in place can make the difference in a quick property settlement, which savvier buyers and investors have recognised,” Mr Brown says. “The methodical buyers recognise that a conditional home loan removes much of the stress of the property buying process.
“Moreover, in the current challenging lending climate where loan approval processes have jumped significantly in recent years due to more regulatory red tape, a buyer can confidently put in an offer on a property knowing subject to the property valuation the loan will be approved.
“It's also possible to negotiate a better price when you have an approval in place, especially when other buyers do not have finance approved.”
First home buyers have recognised the value of conditional finance
In some cases, first-time buyers have recognised softer house prices have created more affordable entry points into property markets they were excluded from previously, notes Mr Brown.
“Additionally, brokers within our team are reporting that clients who have had preapprovals in place for some time are also actively identifying affordable entry points to the property market.”
An increase in the applications for conditional approvals could be linked to concerns that further changes in lending policy will see current preapprovals evaporate. Mr Brown adds, “Longer term preapproval holders currently represent a significant proportion of loan volumes within much of the industry.”
While concerns over tighter lending policy has activated market participation by longer-term pre-approval holders, it has simultaneously amplified the value of preapprovals.
Mr Brown explains, “By shifting the preapproval process towards a full financial assessment of borrowers, lenders have inadvertently provided the market with more surety regarding a borrower’s capacity to complete the purchase.”