Mortgage rejections double as interest-only reset bites

Interesting stuff and a warning to all to keep a tight watch over their finances

Mortgage rejections double as interest-only reset bites - MacroBusiness

 

A bit misleading. They might be apps for io extension or wanting lower rates or equity releases, where rejection may not be a big issue. If they were apps on contracted purchases that would be more significant?

 

Probably not as misleading as you think from a certain perspective.

Fortunately these days it's getting rare that people purchase without verifying their borrowing capacity first. I have a lot of conversations with people who mistakenly assume they can borrow huge amounts and fortunately we're able to give them a reality check before they get into trouble.

This actually occurs with investors a lot more than owner occupiers these days. In the past they've been able to easily borrow money, today it's a very different story.

From a certain perspective it might be accurate to say that at least 1 in 3 have expectations of borrowing capacity that are higher than what they can actually get.

Last week I had two referrals from a solicitor that I simply had to tell them that they wouldn't be able to get finance. One was an older property developer who'd always been able to get finance because he had equity and a 'special' relationship with his bank. Unfortunately that lender has told him they can't help this time.

 

As we move further into 2018, and into 2019 and beyond, stories of borrowing power ceilings hitting earlier than ever will just continue to grow... we are only 2/2.5 years into the new credit era so most people arent even aware of the changes yet.... unless someone has been actively trying to borrow , refinance or seeking to extend IO terms during the past 2/2.5 years they are quite likely still completely oblivious ...

I said a couple of years ago this was a disruptor that would bring a culture change - but like any culture change it takes years before it becomes the new norm. There is resistance, then denial, before acceptance.... we are still in the resistance and denial stage for most people... it will take several years yet before its widely accepted that borrowing power aint what it used to be... and a few years longer for the focus on growth to shift to a focus on yield.

The example above of the older developer who has equity and has never been told no before, is a perfect example of the changed times... equity means diddly. If you want to be able to continue to borrow more money you need to reduce debt or improve income, or both....

 

The comments section at the bottom of that link are too funny!

Just more reinforcement of what we have been discussing here for the better part of 2.5 years. Borrowing power down. IO terms down. P&I the new norm. Equity means diddly without the ability to harvest it. Growth cycles wont be the same moving forward.

Fight it of you want. Argue semantics if you want. Pretend you can beat the servicing calc maths if you want... but it wont help .... better off accepting it and recalibrating for it .

Pay down debt.

One day this will pass - it might be years away , but one day this will pass- and he who is deleveraged with lotsa cash flow will make all the rules, then...