The recent Royal Commission into the finance industry has resulted in a tightening of the lending market. In fact, the latest research from Digital Finance Analytics (DFA), which involves a survey of 52,000 households, has reported that approximately 40 per cent of home loan applications were rejected in December 2018, up from 8 per cent in December 2017.
When divided into segments of the lending space, the highest rate of mortgage rejection was for refinance applications (48 per cent), followed by investors (11 per cent) and first home buyers (5 per cent).
If you are looking to finance, re-finance or better manage existing debt, we’d like to offer you some tips and tricks to help you secure a good deal.
- Get your tax returns up to date.
If you are looking to finance or re-finance, having your tax returns up to date is very important. Financiers need confirmation of your ability to service debt and this is proved by showing a strong income earning capacity. In the financial world 30 June 2018 has long passed and financiers are now starting to request current year financial information. Ensure you have a good bookkeeping system in place that allows you to quickly and accurately demonstrate your current income earning ability. If employed, present recent payslips, and if in business, be prepared to present interim financial statements.
- Keep the tax office happy.
Ensure that you have lodged all outstanding tax returns and activity statements. Pay in full any income tax, GST, PAYG withholding or PAYG instalment debts. Having outstanding tax lodgements and debts is the quickest way to show financiers that you are a risky client.
- If in business, keep debtors and creditors in check.
Good debtor and creditor management is important for business cashflow. Strong business cashflow proves your ability to repay debt. If there is evidence that you are struggling to be paid by customers and being tardy with paying suppliers this can significantly hinder your ability to borrow funds.
- If employing staff, ensure your super obligations are paid on time.
Staff super is an often and easily forgotten obligation. Ensure you pay super at least quarterly as having overdue staff super can be seen as an indicator of cashflow problems.
- Shop around for the best deal.
Be careful of hidden costs and excessive fees and interest rates. Watch out for unscrupulous financiers who like to charge for costly finance insurances you don’t need and are unlikely to claim on. Be mindful of quotes for “manageable” repayments without knowing what the interest rate is. Watch out for lenders with cheap interest rates but excessive fees – make sure you check the comparison interest rate (which includes all fees).
- Make hay while the sun shines.
Interest rates are relatively low at present. All predications are this won’t last. Consider whether you have the ability to manage your debt should interest rates increase. Repay current debt quickly while you have the ability. Focus on repaying private (non-tax deductible) first.
- Seek professional assistance if needed.
We hope this provides you with some helpful guidance regardless of your stage in the lending journey. Please don’t hesitate to contact our team if you need some help to get your business accounts or tax returns up to date. We can also help you improve your business performance and cashflow to ensure you maximise your borrowing capacity. And finally, don’t hesitate to ask any questions you may have if you are struggling to decipher a complex finance agreement. It’s always best to be fully informed before making any significant financial commitments.
Please note that this advice is general advice only and does not take into account your individual circumstances. Should you wish to discuss your particular situation please make a time to talk to our team or your lender or finance broker.