The New Credit Reporting Rules

More carrot, less stick: Comprehensive Credit Reporting

Many people only pay their bills on time to avoid being slugged with late fees and a bad credit rating. But a big change this month means that you can now be rewarded for timely repayments.

From mid-September, ANZ, NAB, Westpac and CBA all agreed to commence Comprehensive Credit Reporting (CCR).

It’s seen as a more “positive” reporting system than the “negative” credit reporting system that has previously been in place.

CCR was introduced back in July but it’s just taken a while for the big four banks to get onboard.

Hold up. What exactly is CCR?

CCR will see the banks provide additional data to credit reporting bodies such as Experian, Illion and Equifax.

The data that they’re now required to supply to these agencies include:

– The type of loan or credit account.

– When it was opened or closed.

– The credit limit.

– When payments were made on time.

– And when payments were made 15 days late (not to mention the ones that are made 45 days late!).

So how does this help my situation?

In years gone by, the credit reporting bodies only heard about you when you had messed up.

Basically, this meant that banks, credit unions and lenders could only really assess your borrowing capacity on the negative aspects of your credit history. This included late payments or defaults.

However, now that CCR has been adopted by the major banks, your positive credit history, such as timely repayments, will be reported too.

This now gives your credit score the chance to go up – not just down.

Here’s the real kicker though

Just by knowing the above information you’re already more informed than 60% of the population, according to research by credit reporting agency Experian.

But the best bit is: positive credit reporting can help you obtain a loan for a home or business.

“From our experience in the 19 other countries where we operate credit bureaus, positive data sharing is a much fairer system and provides consumers with better credit opportunities,” says Experian Australia’s Poli Konstantinidis.

“It doesn’t just help those with strong credit scores, it also means those without a long credit history, young first home buyers for example, can build one quicker than before.”

So what’s my next step?

Well, that’s simple. Make sure you’re paying all your bills on time!

“This isn’t about the value of the car you drive or how big your recent pay rise was,” says Konstantinidis.

“Pay credit cards and loans on time, as lenders may now consider this when deciding whether or not to approve your credit application.”

You’ll also want to check your current credit score.

You can get a free credit report once a year from one of three national credit reporting bodies (CRB’s). You can find out how on this government website.

If you need a hand doing so – or you discover that you have a poor rating and want help improving it – then get in touch.

We’d be more than happy to help out.

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Are There Any No Deposit Home Loans These Days?

best mortgage broker - hand weighing cash on a scale against getting a houseShould you make application for a home loan, especially if the loan you want happens to be for more than 80% of the property’s value, with most lenders you’re going to have to show them that you already have a satisfactory amount of savings.

This reassures the lender that you have the capability to fulfill your repayment obligations once you have been confirmed for a loan.

Most lenders policies require that you have a minimum amount of 5% of the property purchase price saved as a deposit.

Although, there are lenders that will loan up to 98% and 100% of a property’s value. However, most mainstream lenders will only lend to 95%.

That is, unless you have an immediate family member who is willing to use equity in their property to guarantee the loan you want (conditions apply).

In these instances you don’t need any deposit and you can borrow up to 110% of the value of the property you want to buy. It’s called a Family Guarantee Loan.

No Deposit Home Loans and LMI

To obtain a loan with any of those lenders the borrower would need at least an 8% deposit in order to be able to capitalise the Lenders Mortgage Insurance premium that will be charged.

Any loan that exceeds 80% of a property’s value will incur a mortgage insurance fee. This is a fee that is paid by the borrower to an insurance company that insures the banks loan in case the borrower defaults on their loan.

What Constitutes Genuine Savings?

The borrowers savings in most instances will be accepted by the selected lender as an acceptable genuine 5% deposit amount if the savings account in the borrowers name shows the required savings have been in the account for 3 months or more.

Alternatively, the savings account had constantly been receiving funds over 3 months or more and now had the required deposit amount.

There are many classifications of savings however these mentioned below may or may not qualify for a home loan deposit:

  • Cash gifting program
  • an inheritance
  • casino/other gambling winnings
  • Cash coming from selling a non-investment asset
  • Incentives and government financing
  • Personal loan

Are No Deposit Home Loans Just a Myth?

That said, if the money can be shown to have been in the borrowers saving account for at least 3 months, most lenders will accept that as genuine savings.

Are there other options for acquiring a loan if I don’t have genuine savings?

The good thing is that there are still loan companies that are willing to provide you with a loan despite having no genuine savings.

These include:

  • Family guarantor loans – a family guarantor loan is where an immediate family member allows the equity in their home to be used as security to guarantee the loan. Conditions do apply. However, most lenders will allow borrowers to borrow up to 110% of the purchase price of the property they want.
  • Some lenders may also accept non-cash genuine savings – some of these include equity in another property, term deposits and shares. In certain cases, the sale of a vehicle owned by the borrower can also stand as genuine savings provided that the borrower shows proof that the vehicle was owned for at least 3 months.

There are some lenders that will allow you to take out a personal loan to obtain the required deposit.

Keep in mind though you will need to show healthy taxable earnings to be able to do that strategy.

Any liabilities you have or create will reduce your borrowing capacity for a new home loan.

  •  A stable rental history could see a loan provider forgive you to having to come up with 5% genuine savings. There are a few lenders who will waive the 5% deposit rule if documentation can be produced from a licensed property management agent showing that all rent has been paid on time and in full for the preceding 6 to 12 months.
    This will highlight your ability to make repayments on time and on an ongoing basis. Nonetheless, you will still need to drum up a deposit from somewhere.

What is the Most Effective Way to get Qualified?

If you’re keen on buying a home and you’re not sure if you will be able to qualify then contact us or a reliable experienced mortgage broker near you and they will be able to assess what you need to do.

Sometimes, all it takes is to understand the situation of the borrower and find a suitable lender with the right policies that can match the borrowers needs.

Brokers are the best bet because they develop their understanding and successful strategies through experience and constant communication with a network of lenders policies and procedures.

Each lender has specific policies and each borrower has specific needs – this is something that the best mortgage brokers understand and matching the borrower with the right lender is what they do very well, especially when it comes to no deposit home loans.

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The Domino Effect

mortgage broker - a hand starting a long snaking line of dominoes to start falling over

Avoiding the interest rate
hike domino effect

When one bank hikes its interest rates, the rest usually follow one after the other like dominoes. Here’s how to avoid getting caught up in the chain reaction.

mortgage broker - a hand starting a long snaking line of dominoes to start falling overYou may have seen the news last week that Westpac has raised variable home loan rates.

But if you missed it, well, no one can blame you.

It’s common knowledge that banks try to time their bad news right when it has the chance of being buried by other events. And what better time than after a change in Prime Minister?

The 0.14 percentage point increase came just days before the Reserve Bank announced that it would keep the official cash rate on hold at 1.5% for another month, extending its record rate freeze to a 25th consecutive month.

But as we’ve seen, just because the Reserve Bank keeps the official cash rate on hold doesn’t mean banks won’t make their own business decisions.

The domino effect

Usually when one of the big 4 banks makes a move, the rest soon follow.

That’s because the first bank to do so gives the others cover. It takes the heat off them, so to speak.

However, if they follow suit too early, the move looks a tad cynical. Wait too long, however, and the cover provided wears off.

Long story short: it’s been just over a week since Westpac’s announcement, and many are tipping the other banks to make a similar announcement any day now.

What you can do

Ok, so if there’s a good chance that interest rates are on the way up, what can you do?

Well, first and foremost you can visit us for a home loan health check where we can run you through the below options:

– Shop around: Lenders are always jostling for new customers with competitive deals. If you haven’t refinanced recently, chances are you may be missing out. Refinancing doesn’t always mean changing banks, either. If you find a better rate elsewhere there’s a chance your current lender might match it.

– Lock in a rate: Rate increase speculation isn’t limited to the big 4 banks. Half of Australia’s leading economists in the nation’s longest running survey – the BusinessDay Scope economic panel – believe the RBA will lift its cash rate by the end of the financial year.  Now might be a good time to lock in a rate you’re happy with.

– Consolidate your debts: If you have a credit card, car loan or other personal loans, you can save money if you refinance and consolidate them into one loan. This will give you one simple repayment to make each month instead of a bunch of them, which can help you avoid late fees. Also, all your debts are charged at the home loan interest rate, which is usually much lower than a credit card rate.

Get in touch

To find out more about avoiding getting caught up in an interest-rate hike domino effect, get in touch.

We’d love to help you find a home loan that you’re happy with – regardless of market movements.

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Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.