All Posts By

Peter Ellis

Why Peter Ellis and Lending Mate are different

lending mate

Most businesses who assist borrowers with finance sell on price. “We’ll get you the cheapest rate!” they say.

From comparison sites to home loan ads, the primary focus is sprucing super low-interest rates with picture perfect people luring you in. It is almost like the rate is the only consideration – a low rate will solve all your problems and find you the perfect loan.

But when I founded Lending Mate, I decided to focus on something much more important to everyday real people – stress relief.

Not price, but stress relief.

A lot of brokers think that’s crazy. They tell me, “The only thing borrowers care about is rates!”

That’s partly true but mostly false.

Borrowers have been conditioned to focus on price. Why? Because it is all they see and hear when it comes to home loans. So generally, when I first meet a client, they too are fixated on price.

How does my current rate compare? Have you seen that super low fixed rate – is there a catch? Am I being ripped off by my lender?

However, once I take the time to get to know them, I discover what they’re after is a lot more than someone to find them the cheapest rate. What they are really looking for is someone who will genuinely look after them. Someone who will help them make the right decision to put them in a better place financially. They are looking for someone who is on their side to help them deal with the complicated finance process dominated by big organisations.

Please don’t get me wrong – I’m not saying I ignore interest rates. That would be foolish because obviously, rates are important. It’s just that they’re not the be all and end all because as I have so often found, juicy interest rates are meaningless if you can’t meet the strict lender criteria to obtain the interest rate.

The lack of transparency in lending causes people stress. Borrowers feel like they are only being told half the story, enough to get by, while what is actually going on behind closed doors is being concealed. Transparency is an essential part of the Lending Mate approach.

Lenders love to draw people in with super low-interest rates that in the fine print are “subject to lending criteria”. What people don’t realise is that only certain borrowers will qualify for those rates or that they come with often-annoying conditions. Yet, nowhere is the full list of who qualifies spelled out for borrowers. It is left for when you apply for you to be told “sorry we can’t help you” which can create a huge amount of stress.

Alarmingly, despite only telling people the bare minimum and hiding behind glossy ads that draw you in, most lending business is still directed towards on a handful of lenders. That’s great but these lenders don’t cater to a lot of peoples needs. We at Lending Mate work with a panel of smaller, reputable lenders that are not only more flexible but also know they need to work much harder to win your business.

Lending Mate’s transparency translates into honesty as well. We won’t stuff you around, won’t make promises we can’t keep, won’t make you jump over unnecessary hurdles, won’t pass you from department to department – and won’t make you tear your hair out in frustration. That’s the beauty of transparency – it’s a big stress-reliever.

The people that we focus on are borrowers who have been messed around by the system. They might have received an unexpected “no” from a lender that they have dealt with all their lives. Their circumstances may have changed and things might have happened to them, and for whatever reason, they are struggling with their financial commitments or struggling to get a home loan, and most of all know they need help.

Our approach is simple. We don’t rush into solution mode. We take the time to build trust, to really understand where they are coming from – unique stuff that has happened to them and what is causing them stress about their finances. That’s when they open up and explain how overwhelmed they feel. That’s when they let you know that while a cheap rate is good, what they most want is for someone to relieve them of their stress.

It is a bit like a counsellor. We ask a lot of questions; do a lot of listening. We really want to understand what individuals are going through, but never judge. It is not about right and wrong and it is definitely not clear cut in black and white.

When we understand the full story, we can then make recommendations. Explaining it in detail with full transparency means that they understand all the stuff that other people and lenders haven’t properly disclosed. They know that while the product I’m recommending might not be the cheapest, it will definitely be the one that suits their unique circumstances – at that point in time.

It’s such a relief to know someone has got your back. To be able to forget about endless paperwork, crippling debts, and bank rejections. The stress can just drain away and confidence and control replace it.

We keep in contact with our borrowers’ post loan settlement and find out how they are and how things have progressed. The really positive thing is painting a way forward – that once their circumstances improve we catch up for a review to see if they can move on to another lender with a more attractive rate and policy conditions. Looking after people for life means that we are not just there for a single transaction – but our role in looking after them develops as they do.

When I first started out, I was a Broker much the same as any other. I dealt with the full range of clients who often preferred the loans offered by big lenders that they had dealt with in the past or who advertise heavily. Did you know what I discovered? The borrowers I most enjoyed working with most were the ones that the big lenders were not that interested in. Those non-vanilla borrowers who had the trickiest situations and were feeling the most anxious.

These were real people with real lives. Not just the fairytale mum, dad and 2 kids standing in front of an idyllic house with perfectly manicured lawns. They were stressed. Coping with major life challenges. Struggling to come to terms with a relationship breakdown. Sick of bad stuff in the past holding them back and just wanted to get on with their lives. They were different. They were self-employed. Wanted to live somewhere away from major centres. On top of that, they were not earning an income dictated by the 9 – 5 regime.

A lot of brokers and banks just want to deal with the fairytale because it is easy. Anyone outside of this is often seen as too hard. They need hand-holding. They need solutions which are outside the norm. It can seem like too much work for too little reward. But that is where Lending Mate is different. We cheer for the underdog. It’s their life and I’m there to make sure they can enjoy it.

Eventually, I created Lending Mate so I could specialise in helping these real people. A cheap rate today won’t be the cheapest tomorrow. But stress relief will open up a whole world to people who currently feel trapped. That is what Lending Mate is all about.

Applying for a home loan – what to do if you don’t tick all the boxes.

Have you applied for a home loan lately? If not you might be in for a shock. A lot has changed in the past few years and it can come as a surprise. Especially for people who are upgrading or refinancing to access some equity to renovate or invest. Not only has the amount that the bank will lend you decreased. The questions you are now asked are a lot more extensive which can feel a bit invasive.

How well will you stack up in the eyes of the banks? Here are the top 10 boxes that banks want to tick when you apply for a home loan.

  1. Do you earn your income in the traditional 9 – 5 way?
  2. Is your loan for the home you live in?
  3. Will you be borrowing less than 80% of the value of the property?
  4. Are you aged 50 years or less?
  5. Have you lived at the same address and had the same job for quite a few years?
  6. Is your property a unit or a standard house on a block, in a metro or a large regional location?
  7. In the past few years, have you had limited enquiries for credit (like credit cards, car loans, personal loans, interest-free facilities etc)?
  8. Have you had perfect repayment history on any facility held with the bank (never been over the limit or overdue on any savings account, credit card or personal loan even if there was a valid reason)?
  9. Have you not suffered any issues like job loss, illness or divorce that has caused you financial difficulties?
  10. Do you have a clear credit history?

If you can tick yes to all of these, you are in demand and are in a strong negotiating position with most lenders. Your current mortgage facility could likely offer you reductions in interest rates in order to retain you if you threaten to leave.

If you ticked ‘no’ to some, you might find yourself in far less of a negotiating position. You might be shown the door if you threaten to take your business elsewhere or, after negotiating the purchase price of a property, your application may be declined or the bank may be willing to lend you a lot less than what you need.

Turning a no into a yes

Although you can’t do anything about your age or if the property you are looking to finance isn’t in the right location, there are a number of other boxes that you could potentially turn into a “yes” over time.

You could focus on paying more than the minimum and building up your equity, resisting the urge to increase your home loan to go on an overseas holiday, being vigilant about paying bills on time and not losing track of due dates, saving up and using cash instead of applying for credit etc.

Here’s the good news. It is not the end of the road if you are knocked back by your lender. There are alternative options out there, even if it may take you a few more steps to get you to where you really want to be.

Don’t panic: Don’t do anything rash like applying with a multitude of lenders hoping that one will say yes, but plan your next move very carefully. You need to be extra careful. Why? Because anything you do from here could damage your credit record. This could also provide more reasons for lenders to say no in the future.

Get help: Find someone you can trust that has the knowledge and expertise to find options for you. Ask about their track record. For example, have they found options for lots of borrowers in your situation in the past? What is their track record in helping them to get back on track in the long run? Also, get references. Do they have independent reviews or existing borrowers you can speak to that they have helped?

Knowledge is power. Understand what banks are looking for. Ensure that you tick all the boxes before you apply for a home loan. Instead, you can blindly proceed to apply, thinking that you are the ideal borrower when in reality any number of things can cause an application to be declined.

If in doubt give us a call on 1300 426 283 or email help@lendingmate.com.au.

Myths about borrowing money that needs smashing

I typed “borrowing money” into Google and up came with 44,600,000 results. The internet is such a great place for information gathering that it sometimes gives would-be borrowers myths instead of facts. These myths need to be dispelled because some believe it as 100% true.

 

1) Interest rate is the most important consideration:

Naturally paying less is what we all like to strive for but at the end of the day the saying “Interest rate means nothing if you do not meet the lenders policy” applies when borrowing money. Lenders all have different policies and rules that need to be followed when assessing a clients suitability for a loan. A lender may have a low rate but does the applicants unique, personal situation meet the lenders policy in order to be approved for a loan with that rate?

2) Loyalty to a lender certainly helps when borrowing money:

Loyalty used to come into the picture many years ago as a positive point when borrowing money. However, due to the changing nature of lending, new regulations and also our own personal situations, this cannot always be relied upon. You may have banked with a certain lender for years and been a great customer. But if the rest of your current situation doesn’t fit the lender, you may not be able to borrow money.

3) Alternative lenders have higher interest rates:

This is a concern I hear a lot. Just like shopping for groceries where going to a different outlet may involve varied prices, different lenders have different rates BUT they are not always higher. The only way to compare is to do your research when you are considering applying for a loan. Every lender has different products and promotions at various times meaning that what you see today may change tomorrow.

 

As you can see what we think we have come to know may not always be so. Do your research before you jump in. Ask as many questions as needed and if you have concerns or the responses raise more questions, get a second opinion.

– Peter

Will multiple credit applications damage your Credit Score?

Lending mate-Compliments and Concern

Borrowing money at times is portrayed as being simple and easy. Click here, apply there, give us a call are all methods that can start the ball rolling. As finance is very interest rate driven, a good option today may not be good tomorrow so, at times, you may shop around.

The issue is that when you do this for credit it can do more harm than good. Why?

When you apply for finance the lender will do what is known as a credit check. This is where an enquiry is added to your credit file that is recorded for a number of years. While it may seem like a simple thing, doing so numerous times in a short period can impact your chances of success with any future applications for finance.

 

“Shopping around for credit and applying to a number of different credit providers within a short space of time may negatively impact your Equifax Score. It flags you as a greater risk than infrequent applications for credit with a few credit providers”
Source: Equifax

 

So what can you do to up your credit score? When you are thinking of applying for finance consider the below:

  1. What do you need the funds for?
  2. Are you in a position to apply?
  3. Have you asked the lender upfront if your scenario may suit them?
  4. Do you know the documents and personal details that you need to have ready to apply?
  5. Anything in your past that may cause concerns with an application?
  6. Have you had all your questions answered so you know you are making a fully informed decision?

There are many more things to keep in mind but just like when boarding a plane overseas or going on holidays, do a full check to make sure you are ready. You will be glad you did.

– Peter

Your past shouldn’t always determine your future

When needing to borrow money the first thing many people do is go to the current lender they bank with or have previously borrowed money from. The reasons they do can include loyalty, simplicity and their money history being easily available.

To me, this used to make sense until I was able to work a few years in finance. I have come across many clients who hadn’t been able to be assisted by their existing lender. I came to realise that this option should not be the only one you consider. Why?

When buying a product, if you cannot find it at one location, you usually go looking somewhere else for it. If this is the case why don’t many do the same when they cannot be assisted with finance from their lender?

According to lender Pepper Money, 54% of people turned down for a loan didn’t know there was another option available to consider.

borrow money

(Source: Pepper Money)

Why is this you may ask? Life is forever evolving. Even though a lender may have helped you last time doesn’t mean they will this time. This is because your situation or their appetite for certain client types may have changed. Also, just think like the shop that didn’t have the item you were after.  They don’t have to advise you of an alternative if they don’t want to.

At Lending Mate we understand that employment and business conditions change.  Separations and health events occur. Late payments happen, and being self-employed is tough. We have been working with alternative lenders, those that look at things differently.  As a result, we have been able to achieve many successful outcomes for borrowers. Especially those who were previously advised there were no options available.

Together we help you navigate the difficulties and reduce the worries around when you borrow money, allowing you to flourish again, aiming to improve your lifestyle.

If you have been told NO when applying for finance or have had a loan declined, know that there are plenty more fish in the sea.

Have you heard of..?

The advertising and marketing of products and services are prolific. Online, print media, bus shelters, hot air balloons, and billboards, you name it.

When it comes to financial services, whether borrowing money or needing debt help, we all usually know who the main players are, but not so many of the others as in reality. Those who advertise the most seem to get the lion’s share of the attention. If they have the money to throw around so be it. But what about the companies that haven’t got the same budgets to spend?

Years ago when I was looking for a new car I went to a dealership that I knew about through them advertising. They were not able to assist me with my needs as I was after a white manual hatchback which they did not have. Being pre-internet days (yes there were such times), I had to go to the Yellow Pages and look up other companies who may be able to assist me. After a few hours of searching, I found another dealer who had what I was after. When I got there I explained my situation and asked why I had never heard of their business. They said that they didn’t have the money to spend on advertising. Interestingly, they also advised me that the dealer I had been to previously was part of their dealer group!

Why didn’t the first company advise me that there was another dealer that may have what I was after? The reply: ”They have a Manager who is only focused on his area and his sales”.

Here’s the moral of the story. If someone is unable to assist you with your needs, look around and ask questions. Don’t stop until you get what you are after. Most times those who you don’t know about have what you are after.

– Peter

Downsizing or RIGHT-SIZING?

Debt help

Downsizing your home can be an opportunity to reduce debt, work less and enjoy life more.

According to the Productivity Commission, about 20% of people aged 60 or over are downsizing and have sold their home and purchased a less expensive one since turning 50. Another 15% have “strong intentions” of doing so in the future*.

But downsizing doesn’t only relate to getting a smaller home, it could also be done to down-size your debt. Anyone struggling with large monthly home loan repayments and lots of smaller debts may choose to sell their expensive property and find one that is more affordable.

It can be a way to cut down on stress – in particular financial stress. We believe financial stress is one of the biggest things stopping Australian’s really enjoying their lives, keeping them chained to jobs they don’t like and has a serious impact on their health and relationships.

Get some help and supporters   

Understanding your options for downszing can take a huge weight off your mind, so start by surrounding yourself with supporters.  Apart from friends and family, find experts who can help guide you.  Seek out like-minded people who believe in what you want to do, can help you get there and also help you learn more in the process.

What to keep in mind                                                                                          

Will the changeover result in you being debt free or will you still have a home loan? Being debt free or reducing your home loan to a manageable size that you can actually picture paying off one day is empowering.  But it is important to get the numbers right.

Get a second opinion by getting someone to go through your calculations with you. Once you know they are accurate, you will have an idea of what life could look like after down-sizing.

How much will you have left over?

The amount you will have to contribute to your purchase will be what is left over after you sell your property. When you are working this out upfront, don’t forget to calculate it on a conservative selling price and deduct what you owe and all the costs.

These can include agent and solicitor fees, expenses to get the house ready for sale. If you are paying out a loan – your mortgage discharge costs. Interest is paid in arrears so when a loan is paid out there will also be interest owing from the last payment to when it is paid out.

Buying your new home

Don’t forget to include all the purchase costs as they all add up.  Stamp duty will be one of the biggest but also add in legal fees and searches, building and pest inspections, adjustments to council, water & electricity rates on settlement, State Government registration and transfer fees, and loan setup costs.

Sell before you buy

It is generally advisable to have sold your property before committing to purchasing another. Falling in love with a new home and seeing it slipping through your fingers. And it happened because you haven’t been able to sell your existing home can be very heart breaking. You also risk losing your deposit or having to get expensive bridging finance. All this is very stressful so err on the conservative side and sell first.

Do you qualify?

If you will still have a mortgage, will you keep the same loan and just change securities or start afresh with a new lender?  Research your home loan options with a financial advisor or mortgage broker. There will be pros and cons of either approach. That is why you need to explore both to work out which one will be the right option for you.

The requirements and rules of lenders have changed significantly in the past few years. If it has been a while since you got your home loan you need to work out if you qualify. This can be done by asking lots of questions upfront and getting the lender or mortgage broker to go over your entire situation before you give them the go ahead to start the application process.

You don’t want to start the process only to be told “no”.  This will result in a hit on your credit record as well as on your pride!

Loan terms

The loan term for a home you are living in is generally based on the number of years you will be earning an income before you retire.  Principal and interest repayments on a 30 year loan term will be dramatically different to repayments over 15 or 20 years.

By working out what repayments you can afford, you will also be mapping out your plan to be debt free.  Now that is exciting!

Are we friends on Facebook?

We would love you to join our Facebook community and get involved in the conversation.  We will keep you updated on the latest and how it may impact you. You will also find interesting takes on topics you may not have considered.  Click here Lending Mate™ and select Follow.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you in control.

Disclaimer:  Your full financial situation will need to be reviewed prior to acceptance of any offer or product.

Free From Financial Worries Pty Ltd trading as Lending Mate™ ABN 88 134 812 165, Credit Representative 442518 is authorised under Australian Credit Licence 389328.

*Productivity Commission 2015, Housing Decisions of Older Australians, Commission Research Paper, Canberra,  http://www.pc.gov.au/research/completed/housing-decisions-older-australians/housing-decisions-older-australians-survey-results-presentation.pdf 

What Happens When House Prices Fall?

Contrary to popular belief, property prices don’t always rise, and property prices aren’t skyrocketing all over Australia.

Sydney and Melbourne might be booming, but did you know that prices have actually been going backwards in Perth and Darwin.

The average residential property price in Sydney jumped 23.7% in the two years to September 2016. This is according to the most recent available data from the Australian Bureau of Statistics.

Melbourne prices also significantly increased in those two years – by 17.5%.

However, during the same time Perth property values fell by 7.2%, while Darwin declined 9.1%.

We all know that property moves in cycles so eventually the cycle should turn but what sort of things do you need to be mindful of when property prices fall? How does it impact everyday mortgage holders?

Typically, we think of the worst case scenario, someone who might have bought at the top of the Perth or Darwin market, and the property now not worth as much as what they paid for it. Even worse if it drops so far that your mortgage now exceeds the value of your home.

These are fairly extreme, but there are more broad reaching impacts that all property holders may want to keep in mind. Borrowers usually find themselves in one or more of three camps when property prices fall.

  1. Grin and bear it

Some property buyers are ‘flippers’ – within a short space of time they acquire a property, do a few improvements and then flip it for a tidy profit. While that can be a lucrative strategy in a rising market or even a flat market if you have renovated cost effectively, in a falling market people might be forced to hold their property for longer to avoid making a loss. This may involve having to change your plans, rent the property out and become a landlord for a while until the opportunity comes up to sell at a profit.

In a falling market, many borrowers have the painful experience of seeing their equity decline. (Equity is the difference between the value of the home and the amount of the outstanding mortgage.) Thinking that you have $150 to $200k in equity can feel pretty comfortable. But if this starts to shrink it can be a bit disconcerting. Focusing on paying off extra then becomes your chief means of building equity and even then, these gains may dwindle if the value continues to fall.

You may have no intention to sell and so are not concerned. However, you may find a loan with a cheaper rate or want to shift lenders to access better features. If the balance of your home loan is hovering around 80% of the value of the property, it may not be feasible to refinance.

Bank valuations tend to be conservative. What if the lender’s valuation comes in and you owe more than 80% of the value? You may stay with your current lender rather than having to pay thousands of dollars in mortgage insurance. Any savings that you get from the cheaper rate can be far outweighed by these sort of costs. Not being able to refinance can make you feel trapped with your current lender.

  1. Forced to sell at a loss

Although property prices can fall when the economy is in good shape, property market downturns can often coincide with economic downturns. That can mean a double whammy for some borrowers – losing their job and losing equity in their home.

You may not even lose your job completely but things like overtime, bonuses or a cut in number of hours you work could mean things get pretty tight.

Struggling to keep up with repayments can be bad enough. But you know what? It’s even worse if the asset you’re struggling to hang on to is depreciating.

Even though you don’t want to sell when prices are depressed you may be left with no option but to put your home on the market. It can seem like you have gone backwards when the cash you will have left over from the sale is less than what you put in to purchase it in the first place. Having to realise a loss can be very painful indeed.

  1. Have to find alternatives

Are you used to regularly accessing equity to fund other things in your life? A property downturn may mean that you have to find other sources of finance. When prices are rising, it can be quite simple to have your house revalued and top-up your loan. You can use this to pay for a renovation, like adding a new room. Aside from that, you can consolidate smaller debts, pay for a new car, or go on an overseas holiday. You might want to take advantage of an investment opportunity as well.

Having constantly increasing equity financing these things can become an expectation or way of life.

When house prices fall, paying off your mortgage becomes one of the primary ways to build equity. Savings for these additional things or resorting to taking out a personal loan to fund large purchases. This is the new reality.

Conclusion

Falling house prices are not something that we have really had to deal with in the Australian market. However, just because they have tended to rise doesn’t mean they always will. To ensure that we are able to weather such an occurrence, forward planning is key.

First, be careful not to over commit when you take out any finance – any sort of finance.

Stretching things that bit further to get that extra outdoor area or the beautifully renovated bathroom and kitchen? That may mean that things are very tight from a cashflow and an equity perspective. Having a bit of breathing space on both counts may help you sleep at night.

Be a little bit conservative when you are tempted by an interest free deal or great sounding finance option. Lots of small debts do add up. Repayments on these can cause strain just as much as home loan repayments.

Second, make sure you have a buffer in place that you can rely on if you need it. Having savings put aside for a rainy day can give you peace of mind and options. Having to stick with a job that you hate because you can’t afford a few weeks or a month without an income can add a lot of stress and strain. Consistently paying more on your home loan can also build up funds for emergencies as well as get you used to paying more when interest rates rise.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets. Those impacted most were people that didn’t tick all the boxes to fit the ideal profile. People who were often being left to fend for themselves.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you back in control.

Disclaimer Statement:  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.

 

Free From Financial Worries Pty Ltd trading as Lending Mate™ (ABN 88 134 812 165), Credit Representative number 442518 is an authorised representative of Connective Credit Services Pty Ltd (ABN: 51 143 651 496), Credit License number 389328.

When Is Helping Your Kids Buy Their Own Home A Good Idea For YOU?

When is helping your kids buy their own home a good idea for you?

Did you know that a whopping 54% of first time buyers receive financial support from their parents?

Also, according to research conducted by Digital Finance Analytics*, the average amount of support is $85,000.

This is not just limited to help with stamp duty, legals or going towards the deposit on a new home. Parental support could be allowing them to move back home while they save, helping out with repayments and ongoing expenses like childcare and private school fees. All of this can be a serious drain on your finances at a time when you should be ramping things up in preparation for when you are not working and earning an income yourself.

We all want our kids enter the property market and gain the benefits of home ownership that we have enjoyed – but it’s important to think of your own plans and finances before proceeding with something that could put your retirement plans on hold or lead to you facing financial difficulty.

At the end of the day, seeking good financial and legal advice will ensure that you go into this process with your eyes wide open.

Let’s check out the three main types of support parents are providing children, and some possible ramifications.

  1. Support your kids with one-off payments

A lump sum cash gift can seem like a no strings attached option that can be used to fund a deposit or pay property transaction expenses.

Pros

Doesn’t involve signing legal documents or tying up your property, and the funds are going towards a single transaction.

Cons

  • If you do it for one child are you then obliged to repeat it again for subsequent siblings? Don’t just consider the child who currently needs your assistance. If other children are coming along then it could turn out to be a significant sum.
  • If you are expecting the gift to be repaid, do you have definite plans for how this will happen? Just saying that it will be repaid when they see their way clear, may mean that it is never repaid or you only see a portion of what you gave. To save any misunderstanding and so you know whether you will see your funds again or not, you need to have a definite plan in place. If gifts are to be repaid, then lenders will also want to factor that into the “children’s” ongoing commitments.
  • What is your expectation if the property is sold? Your child may change their mind and decide that home ownership is not for them or they could change jobs that takes them to a different city or country and decide to sell the property. What happens then? Do you expect that the funds you gave them to be returned?
  • What happens if your child’s relationship breaks down? Although we don’t like to think worst case, how would you feel if in the divorce proceedings the gift you gave is divided between your child and their ex-partner.
  • Where are the funds coming from? If you haven’t paid off your home loan yet and increase your loan to access equity, are you going to be able to pay it off before you retire? Will this mean that you have to work longer than you want to or are able to in order to reach a debt free retirement.
  1. Support your kids with ongoing payments

Some parents go a step further by giving their children ongoing support, which is used for mortgage repayments or living expenses.

Pros

It gives the children the confidence to enter the property market knowing they have help and that things won’t be too tight.

Cons

  • It could encourage your children to over commit as they don’t have to live within their means. When deciding how much they can borrow, if they don’t factor in things like private school fees or other expenses, will they feel as though they are able to borrow more, thus putting further strain on their finances.
  • Having parental support when things are tight is fine but is this the start of a dependent relationship that will continue on? Having a limit or end point to the support may be needed to ensure that your good will is not taken advantage of.
  • It may only seem like a few dollars here or there but what are your plans for your retirement. Do you have a sense of what you need to be putting away each week and each year in order to achieve them?
  1. Support your kids as a co-borrower or guarantor

If you own your own home, it can seem like a simple thing to offer it as additional security and become a guarantor instead of having to part with cold hard cash.

This involves providing collateral (usually a home) that the lender uses so that the loan in effect is secured by two properties – the one the children are purchasing and yours. The lender usually gets a limited guarantee on your property so they only have rights to a proportion of your property to keep the loan to below 80% of the value of the two properties.

Pros

  • Allows the children to borrow what they need and avoid mortgage insurance. Since there are two properties being used as security, lenders will often borrow up to the value of the property they are purchasing which can allow them to put their money towards stamp duty and costs of setting up their home.
  • Mortgage insurance can add thousands of dollars to the children’s loan and take years to repay. Helping them avoid this can enable them to get ahead a lot faster.

Cons

  • You will be required to hand over your title and to sign fairly extensive mortgage documents. It can come as a rude shock when it comes to signing guarantor documents as they can seem to be just as onerous as if you are the main party to the loan itself. You may want to get your own solicitor involved to help you understand what you are signing.
  • You will need to get your own legal and financial advice. The lender needs to know that you understand what you are committing to and that you are not being coerced, so will probably require you to get legal and financial advice. This will take time and potentially cost money to get covered off.
  • What are your future plans for your home and your equity? A guarantee can be in place for quite a few years until either property values increase and/or the loan gets paid down. If you wanted to sell the property at some stage, downsize or move to a coastal retirement location – the guarantee would have to be removed before you could do so. You could also be limiting the amount of equity that you would have access to if you wanted to renovate or invest.
  • Relationship breakdown can also impact a property you are a guarantor for. Ensure that you cover off what happens in this situation. You don’t want to be left as a party to a loan where both partners are estranged and no one is taking responsibility for the repayments.

Conclusion

Just because a lot of parents help their children enter the property market, doesn’t mean you should do it.

We believe it’s a good idea to help your kids buy their own home only if it meets these four criteria:

  1. There’s no chance it will damage your retirement plans

Get a financial planner to go over your own retirement plans first. Make sure that these are firmly in place first so that you know that any support that you provide won’t impact them. It would be difficult to help out your children now only to become dependent on them later on.

  1. Everyone knows exactly where they stand regarding repayments

Open ended plans for repayments leave too much for interpretation. Get an agreement either written up through a solicitor so that you are both clear on exactly what will be repaid and when. You don’t want to risk wrecking your relationship as a result of your nice gesture to help out.

  1. Your child will be able to keep making repayments

Ensure that your children don’t over commit due to your assistance. Whether it is buying a home that puts them further in debt than they would have without your help or don’t put savings aside for unexpected expenses. Ensuring that they can financially stand on their own two feet is vital and this includes having a contingency plan if things get tight.

  1. Be fully informed before committing to helping

This is no time to skimp on getting the right advice. There is probably going to be quite a bit at stake for you so seeking the advice of a solicitor, accountant, financial planner, mortgage broker, lender or the like can ensure that you proceed only after you feel comfortable that everything has been covered off. As difficult as it may be to discuss things with your children like relationship breakdown, repayment of the funds and financial hardship, if you proceed you will all go into it with as best an understanding as you can.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets. Those impacted most were people that didn’t tick all the boxes to fit the ideal profile, who were often being left to fend for themselves.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you back in control.

* www.digitalfinanceanalytics.com/blog/discussing-the-bank-of-mum-and-dad/

Disclaimer Statement:  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.
Free From Financial Worries Pty Ltd trading as Lending Mate™ (ABN 88 134 812 165), Credit Representative number 442518 is an authorised representative of Connective Credit Services Pty Ltd (ABN: 51 143 651 496), Credit License number 389328.

Four Reasons For A Home Loan Decline That Might Surprise You

Did you hear Kylie Minogue recently called off her engagement because her partner cheated on her?

It seems strange that such a beautiful, vivacious star could be treated that way. After all, shouldn’t that sort of thing only happen to ‘undesirable’ men and women?

Funnily enough, applying for a mortgage is a bit like looking for love. Even successful people can get the cold shoulder.

Yes, it’s true: being declined for a home loan is a lot more common than you think.

Just as romantics hear all sorts of strange reasons why he/she is just not that into you, lenders can also take us by surprise. Here are four strange reasons they might decline your loan.

  1. It’s not you, it’s me

Lenders like to have balance in their loan portfolio as a way of spreading their risk. That means they don’t like to have too many loans from the same lending sector (ie: investors) or the same postcode or the same industry. So they might decline your application just because they already have too many similar loans on their books.

  1. They’re not ready to move on

Lenders might automatically reject your loan if the information in your application doesn’t match what they’ve got on file. That seems reasonable, but what if you’ve made a genuine mistake? Or what if you’ve experienced a change regarding your marital situation or how many children you’re supporting or how many credit cards you have? If you are lucky they will ask you to explain if not, you may never know.

  1. You once messed up

Remember that time when you fell behind on your credit card repayments? Or the time you overdrew your savings account a few times? No? Well, unfortunately, your bank might. Even though it might’ve been a one-off mix-up that happened a few years ago, lenders can have memories like an elephant, and might decline your application even if your subsequent behaviour has been exemplary.

  1. You party too much

Banks can get suspicious if you make too many withdrawals from ATMs on weekends. It stops you from saving. Not having assets to show for the money you earn and subsequently spend can be an issue especially when it is an ongoing thing. You might be stereotyped as a spendthrift who can’t stop making impulse buys or who has a gambling problem. Unfortunately, banks don’t like to give mortgages to people who are not good with money.

Conclusion

Having a home loan application get declined is serious stuff – and not just because of the amount of time wasted but because of the psychological impact of being told ‘no’. Never had an issue getting finance before? It can be a serious affront which can make you want to retreat to the nearest exit and never apply again.

You will also have an enquiry on your credit report which subsequent lenders may ask you about. They will want to know if it proceeded and if it didn’t why it didn’t. Having to ‘fess up to a decline can be a humbling experience. As a result, the new lender may be more cautious because of it.

What all this shows is that there is a lack of transparency in lending. None of the above is written down anywhere for consumers to tick off and so ordinary people can’t know ahead of time whether or not their application is going to be approved.

There is probably more information about a new car you purchase for tens of thousands of dollars than a home loan that you take out for hundreds of thousands of dollars. The vast amount of detail behind the loan and who qualifies is not freely available. This is where borrowers need to show caution.

That’s where the idea of Lending Mate came to be. Peter Ellis wanted to be able to give borrowers a better deal than what they were currently getting. To cut through the secrecy and educate borrowers on what’s actually going on behind the scenes. His dream was to give people all the information they needed to make proper decisions about lending.

Borrowers deserve better. I am sure you would agree that if Kylie Minogue had been told in advance that her partner had a roving eye, she probably would’ve made better romantic decisions.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets. Those impacted most were people that didn’t tick all the boxes to fit the ideal profile, who were often being left to fend for themselves.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you back in control.

Disclaimer Statement:  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.
Free From Financial Worries Pty Ltd trading as Lending Mate™ (ABN 88 134 812 165), Credit Representative number 442518 is an authorised representative of Connective Credit Services Pty Ltd (ABN: 51 143 651 496), Credit License number 389328.