Lender saw record 71% increase in home loan pre-approvals amid COVID-19 pandemic, allowing many first-time homebuyers as they head into what could be a spring time “Exceptional” for the purchase of houses. But remember, while a pre-approval can be helpful, it’s not necessarily a guarantee that you’ll get formal approval for a loan once you find your dream home.
Home loan pre-approval is a lender’s estimate of how much you could borrow for a home loan, provided you meet certain conditions.
Home loan provider and mortgage broker Aussie revealed today that it had seen a 71% increase in mortgage pre-approvals from its borrowers from January to August 2020, with August seeing the highest monthly pre-approval volume on its files since 2014.
The lender found that first-time buyers accounted for more than half (53%) of pre-approval volumes from January through August, and were up 130% from the same period last year. Aussie said nearly 80% of first-time homebuyers have applied for pre-approval this year, based on his numbers.
New South Wales recorded the highest number of pre-approvals, followed by Victoria, Queensland and South Australia, although Victoria has recently declined sharply due to “tough economic conditions” in that state in the south. cause of COVID-19 lockdowns, according to Aussie.
Australian CEO James Symond said buyers are giving themselves as much certainty as they can in an uncertain environment by seeking pre-approvals.
“All eyes will be watching to see what the spring real estate season will bring this year. Based on these record pre-approval volumes, many Australians have settled their finances and are ready to buy when the right opportunity presents itself, ”said Mr Symond.
Canstar financial expert Steve Mickenbecker said an increase in pre-approval volumes was a strong indicator that there could be an ongoing recovery in parts of the housing market.
“COVID-19 may not eliminate the usual spring time for buying homes,” Mickenbecker said.
He said the interest from first-time buyers in particular was a bit surprising, however, given that a drop in house prices was still widely expected. ANZ, for example, still expects national median house prices to drop 10% from peak to trough, and Melbourne could see the biggest drop of 15%.
“These latest data on pre-approvals suggests that there are still enough buyers interested in entering the market in the near term to perhaps lessen the blow to house prices,” Mickenbecker added. .
“Pre-approvals, especially for first-time buyers, can be considered quite early in the buying process and are often used to inform decisions about the style and location of properties that clients are looking to purchase. It may well be that the purchase transaction itself takes place for a while.
Seeking pre-approval can be worth it whether or not you pass
Getting pre-approved for a home loan can be helpful in confirming your home buying aspirations, and applying for it can be worthwhile whether or not it goes through.
Mr Mickenbecker said that when you go to a bank for pre-approval, there are two possible outcomes.
“One is positive in that the bank will say ‘yes, you qualify,’ confirming that your aspirations are reasonable and that you are ticking the credit approval boxes,” he said.
“The second possible outcome is that if the bank is not able to give you pre-approval, they will be able to tell you what you need to work on to be truly eligible, giving you the opportunity to resolve the issue. . ”
Mr. Symond cautioned that the request for pre-approval may affect your credit rating, which means borrowers should be careful about the number of requests they make. He added that for the same reason, it was generally “a good idea” for borrowers to wait until they “are seriously considering a purchase” before applying for pre-approval.
Even if you are successful in getting pre-approved, Mr Mickenbecker said keep in mind that there could be a number of things that could still impact your ability to be officially approved for a loan an once you’ve found a property to buy.
“The bank might change their policies or their appetite for certain types of loans, they might not like the appearance of the property you have purchased because they might think it is overvalued, or the lender might have developed an opinion that ‘She has too much of a certain place in her wallet,’ he said.
Mr Symond told Canstar that each lender has their own loan criteria and review process for the bad credit loans they offer, which could impact your ability to get pre-approved.
“Some common reasons why your pre-approval may be refused include the lack of real savings or an unsatisfactory deposit, debt to income ratio, bad credit or personal debits, if you have recently changed your employment status or if you do not provide enough documents, ”he said.