Setting yourself up to purchase with confidence and why getting your pre-approval in place is more critical than ever (Ep.78)

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In this week’s episode, Dave, Cate and Pete take you through:

  1. The current state of the market. The Property Planner and Buyer shed light on the flood of enquiries and high levels of interest from prospective purchasers looking to get their ducks in a row to make their next property decision.
  2. What’s driving the flurry of activity?Affordability is the best it’s ever been, interest rates are at an all-time low (and will stay that way for a few years according to RBA Governor Philip Lowe), existing properties have held their value and started to increase, which gives people the confidence to take that next step.
  3. How long will it take to get a pre-approval?Trying to get a pre-approval has been difficult since Covid started, banks have had their challenges with an influx of queries from customers looking for repayment pauses, assessment criteria has been stricter than ever before, with new rules implemented for checking (and re-checking) income. The time to have a pre-approval assessed has blown out to 20-30 days with some of the major banks, plus it’s worth noting that pre-approvals are the second-class citizen of the finance world. The upshot – it’s critical to act now and act fast!
  4. Should you get multiple pre-approvals?With the long turn-around times and queues to get an approval, you may be tempted to apply a scattergun approach to lenders. But this is not necessarily helpful and could also harm your credit score. The trio share strategies you can use to get your pre-approval up and running quickly.
  5. What should you be doing right now if you are interested in purchasing?Contact your strategic mortgage broker and buyer’s agent right now! Knowing a ball park range of your borrowing capacity and determining your strategy are the first ducks that need to be herded in line. Getting caught up on the lender can waste precious time!
  6. When is the right time to purchase?It’s easy to get swept up in the FOMO (fear of missing out), but you also need to consider what is the right decision for you and when is the best time to make it. If you can purchase a superior asset if you wait, you could set yourself up for better financial success than if you purchase a poorer quality asset now. Getting quality and independent advice is the key.
  7. What pre-approval should you get? The Property Planner, Buyer and Professor discuss the different types of pre-approvals available and which you can rely on (and which you shouldn’t) to purchase with confidence.
  8. Selecting acceptable security. A pre-approval is never a guarantee for lending and will always be subject to the property being acceptable security for the bank.
  9. And of course, our ‘gold nuggets’!


Market insights– the Property Planner, Buyer and Professor’s insights

  1. Economic wins driving our recovery. Australian Bureau of Statistics data released last week reveals why property values have been taking off since October as the economic & property upturn continues at record pace. ASX 200 gained over 10 per cent in November, (a whopping return of 120% when annualised) and is in the top 10 of monthly returns recorded over the last 40 years. Car sales turned positive for the first time in 2.5 years, with 10,000 cars sold and Iron Ore exports hit a record $13.5 billion, already $13.2 billion ahead of the average, a significant boost to the government’s revenue, offsetting some of the stimulus and much of China’s tariffs in other areas.
  2. Property values on the rise over November. Dwelling values rose across every capital city, as Melbourne joins the market rebound. The national index increased by 0.8% over November or 9.6% annualised, double the 0.4% growth recorded for October. Darwin and Canberra were the strongest performers, increasing by 1.9% or a whopping 22% when annualised. Regional areas have been the stand outs with a total return of combined capital growth and rental return of over 10.6% over the last 12 months. Banks and economists re-evaluated their projections to be somewhere between 5 and 9% growth for 2021, but we thing that these could be on the conservative side.
  3. Holiday hotspots. Whilst Melbourne recorded an increase of 0.7% over November, the Mornington Peninsula broke Vic records with a massive 2.2% capital growth for the month. This location has seen strong capital growth since the gates opened and the extensive lockdowns driving the great lifestyle re-evaluation have made the Peninsula an even more attractive place to purchase.
  4. Aussies officially out of recession. Treasurer Josh Frydenberg announced officially last week that Australia is out of recession. The property market is leading the recovery – as increased values flows into increased confidence and consumer spending. Compared to the recession in the 1990’s where unemployment reached 11%, we’re looking at revised forecasts of under 8%.

Show notes 

  • Tell us what’s currently happening in the market, are there a lot of people wanting to purchase? 
  • Yes, almost record number of enquiries, particularly from existing clients looking to get their ducks in a row to purchase property – look to upgrade home or purchase an investment. 
  • Why do you think there’s so many people interested in purchasing right now? 
  • Affordability is the best it’s ever been – interest rates, existing properties have held value and are starting to rise and they can afford to do it. 
  • We want to look after ourselves in retirement and provide something to our kids. 
  • The Market is moving: 
    • all capital cities are on the rise 
    • theory that I’ve had for some time now is that markets rebound faster than ever before, and that’s what we’re seeing play out now – it’s just really taking off 
    • Darwin and Canberra are flying – 1.9% growth 
    • Melbourne – we had 0.7% increase over November, that’s more than Sydney 0.4% and Brisbane 0.6%, and it wouldn’t surprise if the Melbourne market moves up in the ranks in the following months.  
  • Incentives to purchase: Vic has come out with their stamp duty concession for purchases up to $1M, available until 30 June 2021 
  • People don’t want to miss out and they want to take advantage before the market gets away from them. 
  • What has that done for the timeframe to get a pre-approval 
  • Trying to get a pre-approval has been difficult since Covid- banks have had their challenges, repayment pauses, meant preapproval times blew out. Productivity is harder to manage. What that’s meant is that turn-around times of 20-30 days for a loan to be approved, banks have been stricter than ever before and added new rules to check employment. 
  • our team has reported 20+ days to get a preapproval in place. 
  • The reality is that people are missing out on properties they’re interested in, because the pre-approval isn’t ready and they don’t want to take the risk of finance not being approved. 
  • There are different kinds of pre-approvals out there, what are they and which type of pre-approval should a buyer be looking to get?  
  • Fully assessed approval – you submit your application and supporting documents, then a credit assessor takes a look at the application, goes through all of the supporting documents with a fine-tooth comb, verifies the information, ensures it meets their policy, they may ask for further documents. But at the end of the process, you know that they have properly assessed your income and borrowing capacity and you can go forward with confidence. 
  • System generated approvals – this is not what you want. You may be tempted because you can get what they call an ‘approval’ within 3 hours. But then you’re leaving yourself open to a nasty shock when you purchase and the lender assesses your application properly and you find that the loan amount you thought you could get is actually significantly less. If you are working with a broker, make sure to ask them if the application has been manually assessed. This will provide you with additional comfort and avoid any issues with obtaining finance once you’ve purchased. 
  • Do not rely on calculators that you do online yourself. 
  • Valuations – must be ‘market value’ and that it is suitable security (eg: if the property is not finished, unlivable, in a particular post code that the bank has black listed. 
  • You must understand if there is anything about the property that the bank may not like.  
  • Why would you not get multiple pre-approvals 
  • You are wasting your brokers time if you are wanting to get multiple pre-approvals, you only need one to cover the price range that you’re looking to purchase at. You only want to get preapproval to a level that is affordable and also with a little bit of wiggle room.  
  • Credit file – each time you submit a loan application, this goes on your credit report and reduced your credit score. 
  • If you’re someone who’s interested in purchasing, what should you be doing? 
  • You need to act right now – you can’t sit on your hands if you want to purchase. The faster you act, the better. 
  • Contact your strategic mortgage broker and your buyer’s agent (If you’re using one) right now. 
  • Figure out your strategy and the supporting documents that you need to provide. 
  • How are you deciding the right price point for you. If you can be doing these things simultaneously and getting an indication from the broker straight away, what is your price level. You may not end up going with that second-tier lender,  
  • Refinances and purchases are prioritised over pre-approvals, only 60% of people will end up buying, they may not get paid for it. Second class citizens to banks and brokers, because you’re doing the work but you won’t get paid until later. 
  • Know ball park what your price range is going to be. Don’t be too caught up on the lender, if you can take action faster. Look to do that. 
  • Supporting documents – proof of income, still need to provide extremely detailed living expenses, sometimes they ask you to explain a one line expense on your transaction statements. Most people don’t know their spending to that level of detail, you need to provide transaction statements on  
  • 80 to 90% of people have some variability in their income – so vanilla deals barely ever exist. 
  • Things might be a bit easier after March 2021, after responsible lending repeal. 
  • Red flags that you don’t want to show up – be mindful of where you are pulling money out of your account, what you are spending money on, gambling or getting money out at the casino. 
  • When is the right time to buy for you? 
  • When you’re talking to a good strategic mortgage broker, if it’s going to work optimally for you to get yourself into a stronger position, where your buying power is dramatically different or restrictions have eased, means that you could purchase a better quality asset. 
  • First time buyers – car loan, HECS bill, gift from mum and dad or security, paying out some of these things earlier, could mean a higher purchase price.  

David Johnston- The Property Planner’s Golden nugget: whether next decision should be investment or home. If you’re still working through what is the right next property decision in the context of your long-term plan, lifestyle goals, portfolio planning, then you probably shouldn’t organise a pre-approval until you are clear on whether the next decision is a home or investment. That’s often the case for first time buyers too, you do want and need to be clear on this. This is another way that things can be delayed for people getting a pre-approval.

Cate Bakos – The Property Buyer’s Golden nugget: when it’s safe to go remaining concern is that you’re not paying too much for it, knowing if you do want to adopt a competitive stretch, you need a plan B. Buffer funds you could tip in yourself, or family member who could step in and help you out, higher percentage LVR on your loan. You should be stepping in with confidence instead of subject to finance clause.

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