Australia’s largest body of professional buyer’s agents is warning home buyers and investors to make sure their loans are pre-approved before making an offer to avoid hefty consequences which can include losing their deposit or being sued for financial damages.
Real Estate Buyers Agents Association (REBAA) vice-president Cate Bakos said lending policy was a rapidly changing landscape and some borrowers were finding themselves ineligible for property purchases at the worst possible time.
“What this all means for borrowers is that the need for an official pre-approval on bank letterhead is more important than ever,” said Ms Bakos.
“Buyers cannot rely on the say-so of a lender’s willingness to lend money or online calculators and think that an indicative pre-approval is enough.”
Indicative pre-approvals can include over the phone advice, personal or private bankers advising clients that lending ‘should be ok’ or old lapsed pre-approvals.
“Many people wrongly assume that because their situation hasn’t changed since the pre-approval lapsed, then the bank’s willingness to loan them money is also unchanged,” she said.
According to Ms Bakos the risk to buyers who purchase without lending pre-approval firmly in place was significant.
For those who insist on making purchase offers ‘subject to finance’, their options in capital cities boasting high auction numbers were significantly reduced because auction sales do not cater to conditional offers, she said.
Private sale properties generally enable buyers to include finance conditions, but buyers need to accept that vendors will favour a competing unconditional offer and they will find themselves constantly getting pipped by other buyers.
“The risk for those who do sign up for an unconditional purchase and later discover that they are ineligible for the loan they assumed they’d get face nightmarish options,” said Ms Bakos.
“The best case scenario could be as dire as obtaining hefty loan rates from a lender catering to higher risk applicants.
“The worst case scenario is that the buyer could default on the purchase, be served a rescission notice and would not only forfeit their deposit, but be sued for the financial damages caused to the seller.
“In a softening market, this could include the price differential between their contract price and the next buyer’s price.
“The big message for buyers here is that being relaxed about lending is not an option.”
Obtaining genuine pre-approval relies on the bank’s assessment being conducted with multiple supporting documentation including but not limited to:
– payslips, records of savings, credit card statements, proof of identification;
– clear visibility on employment status, debt repayment conduct, lifestyle commitments and ‘character’ of the applicant.