Westminster National Finance broker Brian O'Keefe shares five tips on how to secure finance for a residential property in Perth, Western Australia.
What’s the current state of the residential property market in Perth?
Fundamentally, things are doing okay in WA but as we all know through the press, property values have decreased over the last few years. We are seeing through economic indicators that prices have stabilised and in some areas, there are signs of growth, which is good news for most people. However, when looking at the fundamentals of where property prices are, they are subdued because we are not getting the population growth that we were getting in the past. Economic stimulus is happening from the state government, however, they are being very selective in the areas they are applying that to, so there are some corridors of the metropolitan area showing some better areas of growth, but it’s not across the board.
Does the current market offer opportunities for property investment?
From an investment point of view, it’s been fairly low capital growth for a long period of time. There has been some correction in prices, they’ve come down a little bit, so investors are able to enter the market and positively gear their properties with low-interest rates.
What finance options are available for residential property?
To put it into two classes there is residential investment to live in (owner-occupier) and residential investment to rent out. Both come with options. With property investment, interest only and principal and interest options are available, as lenders are less reluctant to offer interest only to residential investors in recent times. You can also move in as an owner-occupier, with potentially an interest-only period, then move to principal and interest, which is usually repayable over a 30-year term.
You also have a disparity in interest rates between owner-occupier vs investment and interest only vs principal interest. People need to be aware that to gain interest only as an option will potentially cost you a little bit more in interest rates, but also there is a clear appetite for banks to do that. APRA as the regulator for the industry has relaxed interest only options for investors, and lenders have been taking notice of this in recent times.
5 tips to secure residential property finance
1. Review current finances
This is really being ready and prepared for making an application to the banks. There is a tremendous focus on the banks enquiring about everything, they want a boots and all, belts and braces approach to gaining information. So you just have to be ready in terms of your account conduct, account behaviour and with all your information so it meets the requirements. As a broker, we can give you a checklist for the information you need to do around reviewing your current finances to make sure you can get the best deal possible.
2. Good credit
This is really fundamental. You can go online and get a check of your own credit score, it comes at no cost to you and there are a number of providers who allow for this. Having a good credit rating is fundamental to the banks making a positive decision on lending you money. If you have a bad credit score you may still be able to achieve finance, but it will be at a much higher interest rate.
A good credit score is really about making sure you’re meeting all your payments and keeping everything up to date such as telephone fees, bills and not missing credit card payments. Adverse credit history, again, be very conscious of keeping this current and don’t miss payments because it does impact substantially whether a bank will entertain an application from you.
3. Employment verification
Banks require employment verification to verify base data. We all have different occupations and working arrangements, some of us are full time, some are casual, some work on a 6-month contract, rolling contract or for a labour-hire company. Again, it’s about working with your broker to understand the information and verification required by the lender to secure your finance, and making sure you get the right information from your employer or a third party. Aim to keep accurate records of statements and pay slips that come through (most of this info is available online these days) so that your information is easily accessible and can be provided to a broker to support your application.
4. Sufficient equity
Equity is the difference between what your property is worth and what you owe the lender. If you owe the lender $400,000 and your property is worth $600,000 you will have $200,000 equity. What we’re finding with a lot of our clients in recent times is that equity in their property has been reduced, due to the property value falling over the last few years. That’s a wake-up call when people are looking to refinance, buy another investment property or upgrade their existing home. Working with your broker to ensure we know the equity in the property is critical to getting the best possible deal and making the pathway very smooth to you as a client.
Pre-approval is about you being confident you will get the finance you need so you can go and make an offer on a property.
Similar to a full application process your broker will gather all your necessary information to give to the banks for a pre-approval. It’s worthwhile to do this prior to you finding that particular property that you might look to buy, so you know you’ve got a high degree of success in getting the finance that you require to make the settlement of that new property happen.
As you’ll have seen through the press, it’s a minefield out there, sourcing finance is so much more difficult than it was five years ago. As a broker, we help you navigate that course to achieve the best possible outcome to help you secure that investment property you’ve been looking at or upgrading into a new home in an area that you’ve been looking at aspirationally for some time.