If house prices really do fall by 20%… what does that mean from a finance point of view?

It might surprise you that it doesn't really mean much at all. When the media sensationalise falling house prices they’re referring mostly to Sydney and Melbourne, where there is a correction in the market following the unsustainable rise of house prices.

At this point we need to remember that lenders had already tightened lending criteria, it is not driven by falling house prices.

And even if prices go down by 20 percent... they've still gone up almost 100 percent over the last few years. Property owners are still in a position where they can access a considerable amount of equity... even if valuations are coming in slightly lower in Sydney and Melbourne.

In other capital cities evaluations are still coming through quite high… Contrary to the media coverage, house prices are not falling by 20 percent. So the reality is, it's not really having much of an impact on obtaining Finance at all.

It has been the banking Royal Commission and APRA which have caused the stricter lending conditions. The simplest explanation of what that means for you is that there's just more documentation now required. Loans are still getting approved but they're just taking longer to structure and process.

Prepare Yourself With Positive Financial Outlook

It's a little bit like security at an airport. These days you've got to line up for longer... but you're still going to make the flight. You prepare by planning ahead, for example, arriving at the airport a little earlier.

With tighter security measures when you're boarding an international flight, there is another level of planning required like separating your liquids in their individual bag. By giving yourself plenty of time to undergo the necessary screening and security checks the check-in process is smooth and stress free.

Same with finance, plan ahead, understand the new regulations and give yourself more time for approval.

There really is no need to be fearful of the current conditions surrounding the real estate market. As a new investor starting their investing journey, it’ll be highly unlikely that you’ll be buying million-dollar houses in Sydney and Melbourne, or at least you shouldn't be.

So, you're not going to be affected. Even if you have a little bit less equity to work with that's okay because you've just got to plan accordingly. There are still plenty of markets out there where you can get a good yield and good capital growth, just not Sydney and Melbourne at the moment.

Talking about airport security and linking it to getting your finances in order, the question one can as is, what are the main areas that you need to get in order in the current financial lending market?

How To Achieve a Positive Financial Outlook

Expenditure -you need to make sure that your expenditure is under control, that you're not spending too much money on unnecessary expenses. The lenders are going to be looking at how much you're spending on a day to day basis. That's been the biggest change. Lenders and brokers are actively looking at how much borrowers are actually spending, not just using a base amount.

So if you want to invest, you need to ensure that you're cutting any unnecessary expenditure… and you need to ensure that this is done in advance of the loan application. You can't take a loan application and say, “oh we're going to cut the expenses” and close down your credit card in the midst of a purchase. Plan ahead and pay off personal debts or reduce your monthly repayments at least three months before you start looking for finance.

These days brokers have an obligation to interview you and you have to personally attest to certain levels of expenditure. Which is why these days you are going to be asked all sorts of different questions and provide documentation on personal spending. Lenders will check your bank statements, ensuring that your expenditure is under control. This is the number one biggest change in the industry.

Balancing your Portfolio –Current property investors may have properties that are heavily negatively geared. Now may be the perfect time to understand the impact of these investments in your portfolio because they may be stopping you from purchasing other investments that are predicted to perform better. Selling off the underperforming property may in fact allow you to borrow much more that you thought possible.

Setting an exit strategy –Lenders will ask “older” applicants for an exit strategy to support their finance application. It actually has nothing to do with your actual age, it is more about your position, and if your work-life is going to finish before the life of the loan. In this circumstance you need to show how you intend to pay that loan off…  and you can’t just say that property prices are going to go up.

You need to show evidence of how you're going to pay it off which could be in the form of superannuation or perhaps other investments, working longer or cashing in your share portfolio.

And that's where it's really important to work with finance experts who can support you not only with exit strategies but also really working through your personal financial position to make sure you are ready for your flight and enjoy a smooth take-off.

Before taking any further action, you must first definitely book a Complimentary Finance Review with one of our experienced Finance Consultants.

At Blue Ink Finance, we are more than just a loan. A finance coach at Blue Ink Finance is like a personal trainer for your finances.

Ensuring that your budgets are in order, you are planning what to do with your finances, and that you can afford what you want… not just for the now but also the long-term success of ALL your goals.

About The Author

David Wegener
CEO
Blue Ink Finance

Who I am, and why I want to help you succeed. As an award-winning Mortgage Broker with nearly 20 years’ experience in the finance industry, I’ve seen it all. I’ve gone through constant industry changes and yet I still successfully help my customers borrow the money they need to get ahead. As a Finance Coach, my goal is to help you understand your financial potential so that you can borrow with confidence.

 

 

 

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