Getting onto the property ladder is challenging at the best of times. The last thing you want to worry about when you are taking on one of your biggest financial commitments is a delayed application process with the potential to derail your purchase altogether.
Bank staff shortages, increased loan applications, record-low interest rates and additional lines of questioning in a post-Covid world, have resulted in home loan application turnaround times taking longer and longer, leading to some homebuyers missing out.
Stuff reported that pre-Covid the approval process would normally take between three and five days and now it’s more like ten days, plus another three or four days on top of that if the lender has questions surrounding your income.
Buyers are understandably frustrated with this situation and looking for ways to avoid these long wait times.
Why are the turnaround times so long?
Accessing credit has finally become a possibility for many Kiwis, where previously it was out of reach - which in turn has led to lenders becoming overwhelmed with more mortgage applications than they can handle.
As mentioned in our previous blog, the gap between interest rates and service level testing is beginning to close, with lenders dropping servicing tests to as low as the 5% mark (most sit around 6-6.5%), making it even easier for Kiwis to access the credit they need.
However there are still Kiwis that this change doesn’t apply to, namely the self-employed or those working in currently unstable industries such as hospitality and tourism.
Many lenders are doing multiple checks on income security for applicants who sit within these sectors and some are blanking it all together.
Prior to COVID-19, lenders were happy to look at the previous years’ financial statements to gauge an applicant’s financial situation whereas now, they’re looking into interim statements. This is another factor that is contributing to the delayed application processing timeframes many homebuyers are experiencing.
With many sales and purchase agreements setting finance conditions that allow a buyer only ten days to get their mortgage approved, delays at the bank can prove disastrous.
There are other Covid related factors that have also contributed to the increase in people looking to buy property – New Zealanders previously living overseas returning home and looking to buy, and property investors or first home buyers with additional income due to cancelled international holidays.
The already overloaded bank staff are also tied up with requests from existing homeowners looking to defer their mortgage or take a mortgage holiday due to income loss and change in circumstances.
Lenders are so overwhelmed with inquiries that they are actually directing interested buyers towards mortgage advisers like the MSC – in early September Stuff reported a 20-30 per cent increase in adviser business compared to normal.
How to Avoid the Long Wait Times
Luckily there are things buyers can do to speed up their application process. Mortgage pre-approval is essential in this current climate and will mean you are equipped with everything you need when you come across the property you want.
With sellers receiving multiple up-front cash offers, reducing the wait time for your loan approval as much as possible is going to be vital in order to compete and strengthen your chances of placing a successful offer.
Pre-approval is a lender telling you that they’re prepared to loan you money, providing you meet a few conditions – usually around the value of the house you want to purchase. Getting a pre-approval makes it easier to house-hunt as you know just how much money you’ll be able to borrow.
At MSC, we can help you get pre-approval for your loan, and going through us means you’ll be more likely to be approved – going through a single lender means they’ll only offer you their solution, whereas we can shop around and make sure you secure the right loan for your needs.
It’s our job to keep up to date with ever-changing lender and government policies surrounding housing, so by going through an adviser like us – you know we are across all the ins and outs of this sometimes tricky, and almost always stressful process.
Make sure to keep open communications with your adviser throughout the house hunting and pre-approval process, as things shift day-to-day and what is possible this week might have completely changed in a few months’ time.
Essentially, pre-approval means you can have peace of mind knowing that you are able to secure the loan you need when you find the property you want.
Enjoy the process of house hunting, with the security of a pre-approved loan rather than finding the property you love and potentially losing it due to drawn-out application processing times.
What do you need for pre-approval?
We do our best to limit the amount of paperwork you have to provide and fill in, but you’ll need to have some things on hand in order to get the ball rolling for pre-approval. These are the typical documents to include:
Complete our application form to requirements
ID: Your passport or driver’s licence.
Proof of income: Three months’ of payslips or your employment contract. Or if you’re self-employed, your financial accounts.
Bank statement: The most recent three months’ of transactions on your day-to-day account, where your income is deposited.
Confirmation of deposit: Bank statements from your savings account, confirmation of KiwiSaver withdrawal, HomeStart Grant approval, or gifting letter.
Address verification: A bank statement or utilities bill with your name and address on it.
From there, you’ll fill in a form disclosing your assets, debts, income and expenses. The lender will also run a credit check, so it’s a good idea to know what your credit report says. With all that information we can start the process of getting you pre-approved for a mortgage.
You house hunt, we handle the rest
At MSC, it’s our business to create strong, direct relationships with lenders, which means we are best placed to manage the mortgage process and fast track your pre-approval.
Let us do all the preparation and paperwork while you attend those open homes. If you have any questions around pre-approval, don’t hesitate to get in touch with one of our team members!