Most agree that First Home Buyers are the key to the Australian housing market. How are they doing? Are they being attracted by the current market conditions? Or are they even able to dip a toe in with the current lending criteria forcing them to save for years just to get up enough deposit? We look at the factors impacting first home buyers – and why those buyers who present with a good income and a good deposit but bad credit can be saved.
By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repairs and www.fixmybadcredit.com.au.
Last week AFG announced it had had its strongest July in 5 years…thanks to first home buyers.
AFG told Australian Broker a “powerful cocktail of incentives” has helped them to process the highest amount of mortgages in July since 2007 – totalling $2.7 b.
They report the percentage of first-home buyers has climbed to 17.3%.
“Low interest rates, soft property prices and escalating rents create a powerful cocktail of incentives to get people into the property market,” said AFG’s general manager of sales and operations, Mark Hewitt.
Is an improving housing market a reality? Or perhaps – as some experts have touted – simply the result of skewed indicators due to the June ending of government incentives in some States?
Westpac senior economist Matthew Hassan told the Financial Review last week that there were “consistent” indicators from various sources to the “beginning of a stabilisation in prices”.
But he said it was too early to call a definite improvement. He pointed to the end of various state government home-buyer incentives in June, which had pulled forward demand and artificially inflated buying activity.
Let’s hope house prices are stabilising, and more and more first home buyers have the confidence (and money) to enter the market again.
So if you, as a broker are in the right market to see a resurgence of first home buyer activity, what are the factors impacting credit decisions?
An article in The Australian recently, reported that an average couple will need to save for at least five years to reach the amount required for a first home deposit.
The study by financial comparison company Rate City shows a first home buyer would take five years and seven months to save a 10 per cent deposit of $30,667 for a mortgage size of $276,000.
And a dual income couple with a mortgage capacity of $540,000 would take more than five-and-a-half years to save a 10 per cent deposit of $60,000…
A 10 per cent deposit is now the minimum amount required by many lenders, while many banks want at least a 20 per cent deposit before they relax their requirements for mortgage insurance.
Rate City found it would take a first home buyer 13 years to save the recommended 20 per cent deposit plus $10,000 for fees.
These people that have saved for 5 to 10 years to be able to buy a home in their area have got to be dedicated. This commitment to frugality is often undermined at the time of finance application by a little thing called the credit file. Well, actually it’s a big thing. The lending criteria for risk-management as it relates to the credit check has changed post-GFC just as the deposit and savings requirements have.
So how can it be fair that someone who has scrimped and saved for 5 years to get the deposit together can be refused the pot at the end of the rainbow, purely on the say-so of, say a Telco company whose listing may or may not be lawful?
And how can it be fair that a broker must turn these savers away? Or put them into a loan with a non-conforming lender at high interest rates which sees them struggle just to make ends meet every month?
These questions often come back with a few different responses from brokers who don’t know about or use the services of professional credit repair firms…
1. Yes, but if they have done the wrong thing and not paid their credit – they shouldn’t be given any more.
2. If their listing is not lawful, they should take it up with the creditor before they come and see their broker.
3. They can refinance the non-conforming loan and get into a standard loan after a few years.
4. Exactly, I see clients like this, but unfortunately if they have bad credit for whatever reason, they are just not getting a mainstream loan. You can’t remove bad credit until the listing drops off. Don’t touch those clients.
So what is the reality of bad credit clients? Let’s answer those 4 statements…
1. If people have done the wrong thing and not paid their credit, they shouldn’t be given any more – it’s true. But what exactly is “the wrong thing?” Moved house and had bills come to their old address despite contacting the creditor to change their details? Had a dispute with a creditor that they thought was resolved? Been the victim of a creditor’s mistake? Had a period of temporary financial hardship which was ignored by the creditor? These are very common scenarios as to why the credit listing is deemed unfair. Often this is reason to request the listings removal from the client’s credit file.
2. Clients often don’t know they have bad credit until they apply for a home loan. Then often when they attempt to dispute the listing with their creditor themselves, they have little success. There is a host of legislation which must be adhered to when placing listings on credit files. It is the legislation that creditors can hide behind when consumers come to them to dispute their credit listing. Consumers just need someone on their side who is equally knowledgeable in credit reporting and industry legislation, and with the ability to negotiate on their behalf to remove anything which is demonstrated to be unlawfully listed.
3. Clients could enter into a non-conforming loan for a few years, and sometimes this is the only choice. But it is so much extra money in interest. On an average non-conforming loan of $300,000, the client will pay $15, 046.57 extra at 9% as opposed to a standard rate of 7%. (The cost of employing the services of a credit repairer to restore the good credit rating is miniscule when compared with this). If they are able to remove the bad credit, then they can be sent back to their broker to enter into mainstream credit, and save themselves thousands.
4. Despite what creditors tell consumers, bad credit can be removed if it is unlawful. There are a host of reasons why it may be unlawful – and credit rating errors are more common than most people think. It has been reported in the past through a study by the Australian Consumer Association (now Choice) that as many as 34% of people surveyed had credit files which contained errors of some kind.
The solution is, to refer the client to a professional credit repair firm once you find out their credit file is tarnished. They can do the work to repair the credit file whilst keeping in touch with you on their progress. The client can be sent back to you once their credit file has been repaired. You can have the best loan for them lined up and ready to go.
Talk to a Credit Repair Advisor at MyCRA Credit Rating Repairs on 1300 667 218 if you think we can help you save more bad credit clients.
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