It would be easy to listen to the media, your friends and family and worry about the future of finance and property.
So, is the tightening of credit and tough lending criteria a good thing or a bad thing?
It depends on which side of the fence you sit on. Let’s take a look.

SPENDING HABITS

Let’s look at the ‘against’

  • Your spending habits are now under the spotlight – BIG TIME!
  • Now more than ever you need to make sure you pay all your bills on time
  • You have to live within your means
  • You need to declare your REAL living expenses not your ‘I think these are my’ living expenses
  • You have to reduce your bad debt (pay down those credit cards)

Most of us need to change our spending habits now before we get into trouble. When you see a bargain buy, you really should consider if you actually need the item and not simply purchase it just because it is on sale.

Let’s look at the ‘for’

  • If you do obtain a loan approval, the bank has already stress tested you so you theoretically should be ok in a rising interest rate market
  • If you are good at paying your bills on time, you will now be rewarded
  • If you have lots of equity in your property, valuations should not be a problem

If you are on interest-only (IO) repayments (at a higher interest rate) and you change to principal and interest (P&I) at a lower rate, the great news is that in most instances your repayments should now be equal or lower than what you were paying before AND you are also starting to pay off that debt.

DEPOSIT

Let’s look at the ‘against’

  • You now need a larger deposit (with most lenders)

Let’s look at the ‘for’

  • If you have your deposit – you have the power. Or if you are prepared to pay LMI, then that includes YOU as well.

LENDING

Let’s look at the ‘against’

  • The lending platform has changed. Now interest-only loans typically have higher interest rates than principal and interest loans. Ouch for investors!
  • It could be time to consider refinancing and/or consolidating your debt and considering P&I repayments

Let’s look at the ‘for’

  • If your finances are in good shape, your loan application should be processed at a faster rate

TOUGHER MARKET

Let’s look at the ‘against’

  • The housing market is getting tougher to enter (or are our poor saving and spending habits holding us back?)

Need budgeting help? Let us know NOW!

Let’s look at the ‘for’

  • A tougher buying market means that there will be more renters

Wouldn’t you prefer to be the landlord when people can’t afford their own home?

IN SUMMARY

If you have heard of Warren Buffet1, the American business magnate and third wealthiest person in the world, then you would know his secret to success.

Q: What is his secret to success?
A: Doing the opposite to everyone else

Q: When no one is borrowing to purchase or invest – what do you think he is doing?
A: That’s right – the opposite No one can predict what is going to happen in the finance or property world. But there is one thing we know…

You won’t find out if you don’t ask these questions:

• Can I obtain better finance options?

• Am I paying too much interest?

• Are there different ways to structure my lending to my advantage?

• How do I take advantage of a buyers’ market?

• Are there quicker ways to pay down my debt?

If you want to outsmart the media reports and industry experts, let’s have a conversation. There is always a little diamond in the rough.

Glossary:
LMI – Lenders’ mortgage insurance
P&I – Principal and interest
IO – Interest only

Reference: 1.“Warren Buffett”. Forbes. Retrieved May 11, 2017.

Disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. ©2019