It is not often I get to imagine a conveyancer swooping in like Superman to rescue some would-be victims but recent changes in the home lending environment means that might soon be a reality.
A Yahoo! 7 Finance article this week, Stricter loans to cool property market, captures the details on moves by the big banks to make it either harder to qualify for real estate investment loans or more expensive; with either option likely to take some heat out of the property market.
So how does this raise your humble conveyancer to hero status?
It means that if you don’t get meticulous advice when putting your finance conditions into contracts, you risk missing out on finance and your the property.
Why would the banks tighten lending?
It is in the interest of banks to loan money, right?
Yes, that’s right but there are a number of pressures on banks to be prudent in their lending so they are not overexposed to risk and the economy does not heat up to dangerous levels of property bubble proportions.
The article suggests the banks are making these changes because the Australian Prudential Regulation Authority wants to reduce speculative housing investment.
At the same time, there is growing talk the government might clamp down on negative gearing, which analysts argue is inflating house prices in an unsustainable manner.
The Conveyancer’s mindset: A godsend in tight financial markets
The things we pride ourselves on as conveyancers are attention to detail and understanding how various contractual statements exist in a context of various laws, protocols and business practices.
So when you read about banks tightening lending criteria, we immediately understand the importance of helping clients get their finance special conditions correct in their contracts.
In making an offer for a property with finance conditions, you will need to set out clearly:
- The minimum amount you need approval for
- The maximum interest rate you are willing to pay
- The term in years you require for the loan
- The date by which you need to obtain that approval
Overlooking any of those points can leave you in a weak position and/or exposed to being obliged to accept finance that is not in your best interest.
The wisdom of conveyancers who have been around a long time
From the perspective of Conveyancers at Eckermann Steinert, we argue the points to remember for a Purchaser in this new environment are:
- Make sure you include a finance special condition even where you have a pre-approval (because the bank’s lending terms might change – such as this article is suggesting – or because the property’s valuation might not stack up to satisfy the bank for their security purposes). You do not want to be stuck with an unconditional contract and not be able to obtain finance approval to obtain settlement.
- Make sure you include the worst case scenario of the items listed above, taking into account on-costs of purchasing including stamp duty and registration fees.
- Talk to your bank regularly and as soon as possible in order to understand their current requirements, to make sure you aren’t wasting your own time or the time of the Vendor/Agent.
While predicting the real estate market is a risky business, we believe that having a strong relationship with your conveyancer and applying the wisdom they’ve gleaned from countless settlements is the surest bet to sound real estate investment.