Over the past two years, Australian banks have been pretty conservative about debt. They all dropped their loan-to-value ratios (LVR) and many were knocking back good loan applications because they simply didn’t want new loans on their books.

This was pretty frustrating for smart investors who wanted to take advantage of the temporary market lull. If the banks had been willing to back them, they could have made some great gains in 2009 – both in property and shares!

Now don’t get me wrong, I support a cautiously optimistic view with lending. Banks should be careful about who they lend money to – not only for the benefit of their own businesses but also for the benefit of our economy. It was mass loan delinquency in the US that triggered the GFC, so we definitely want our banks to be smart about lending.  

And today, with our economy strong and our ability to service debt high again, banks are coming back to the party. Not only are they willing to lend again, but they’re also willing to lend at a higher rate – up to 95 per cent LVR.

This has reopened the door to investment. Investors accounted for 35.4 per cent of all business for the AFG Mortgage Index (which aggregates over $2 billion mortgages monthly) in October. This is fantastic to see as property is one of the best ways for Australians to build wealth for the future. This year and 2011 remains a great time to buy and there are loads of excellent opportunities, particularly in large regional and coastal towns.

But back to lending. It looks like investors and homeowners are shopping around for the best deals now that the banks are becoming competitive again. The latest AFG Mortgage Index shows refinancing made up almost 40 per cent of national mortgage sales in the September quarter, which is 10 per cent higher than the long-term average.

So, if you need to apply for a loan, I’d like to help.  Here at McGrath, we have a finance division called Oxygen Home Loans and I asked the general manager, James Green, to give us his top five tips for improving your chances of success.

  1. Reduce credit card limits or clear balances monthly. Lenders will not include credit card limits in their assessment if you can demonstrate that you clear the balances monthly.
  2. Open a separate savings account. Accumulate your deposit over a six-month period in a separate account. This shows the bank you have a strong savings pattern, which is particularly important when seeking a loan above 80 per cent LVR.
  3. Timely payment of accounts. Make sure you have paid your bills on time, especially within the past six months. Consider setting up direct debits.
  4. Plan your house purchase with your career. Stable long-term employment is crucial. Don’t apply for a new job at the same time as your loan. Most lenders won’t lend to someone who is in the probationary period with a new employer
  5. Seek advice. Talk to a broker or your financial advisor before applying for a loan. Many lenders have different policies and most of them won’t look favorably at an application that has been declined or did not proceed with another lender.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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