Be wary of the banks

OH Mortgage Solutions is warning its customers, particularly first home buyers, to do their ‘homework’ before investing in a property to ensure they do not become a bank repossession statistic.

Low interest rate environments generally draw out risky investment opportunities. People are seeking to make a quick profit and often jump into investment opportunities that, at first glance look good, however careful due diligence often reveals a potentially venomous sting in the detail.

The banks have recognised that borrowers are on the move again and in very high numbers. Consequently they have started lowering their lending requirements, sometimes to the eventual detriment of unwary customers. The property market, particularly in Sydney, is performing very strongly. Auction clearance rates are at all-time highs and people are paying well above the reserve price in many cases to secure property.

Like any good investment opportunity, thorough research is the key to ensuring the longer term viability of an investment. First home buyers are securing a significant number of the new loans at the present time to capitalise on the low interest rate environment, however in some cases they are not thoroughly reviewing their borrowing capacity in the event of a change in circumstances such as an income downgrade, job loss or unexpected pregnancy.

A heated property market is a time for great caution, especially when banks are introducing potentially risky home loan products. The current high liquidity environment translates into a greater availability of cash. The outlook is very good for property, particularly in Sydney. However this inviting investment context must be kept in perspective by property buyers. This is achieved by ensuring the underpinning financial homework is undertaken with great prudence.

Purchasing property is a great way to enhance financial status. The right time for individuals to do this is always determined by exercising considered due diligence. Stability in personal circumstances such as employment security is a very important consideration prior to obtaining a loan to ensure long term repayment capacity.

The reality is that banks are constantly driven by the need to enhance the quantum of shareholder dividends. To balance this equation third party providers, such as mortgage brokers, align with borrowers to assist them navigate the maze of financial mortgage products thereby helping to eliminate the risk of choosing a path that could be detrimental to an individual’s longer term financial interests.

Five tips for those about to take out a loan include:

1) Be realistic about your borrowing capacity. Living on bread and butter to ensure mortgage repayment is neither enviable nor sustainable. Borrow within your means.

2) Purchasing a property is generally a long termYour thinking needs to reflect this.

3) Shop around and review the various bank products to find one that is right for your situation. Know the criteria required. The cheapest loan is not always the best. Flexibility is the key when considering mortgage products.

4) Research both the property and loan criteria very carefully to ensure both are the best for your circumstances. Be prepared to pay for a bank evaluation prior to purchasing any property to ensure the amount being paid is appropriate.

5) Surround yourself with a good team including a financial planner, mortgage broker to educate and guide you through the process, a conveyancer and an accountant who understands property.

Rolf Howard, OH Mortgage Solutions

Rolf is a consultant to OH Mortgage Solutions and CEO of Owen Hodge Lawyers. He has been in the legal practice since 1986 and a partner of Owen Hodge Lawyers since 1992. Rolf focuses on assisting clients to proactively manage legal responsibilities and opportunities to achieve competitive advantage.

Rolf concentrates on business planning and formation, directors’ duties, corporate governance, fund raising and business succession. His major interest is to assist business owners and their financial advisers plan and implement strategies to build and exit from successful businesses.