Lenders seeking new borrowers with discount offers

Lenders are offering large discounts for new business and rebates for new borrowers refinancing with them, according to Alan Hemmings from Oxygen Home Loans.

He recently noted the following examples. 

New business discounts (owner occupied loans with LVR below 80 percent) 

• St George offered a 1.35 percent discount on new business valued above $500k and 1.45 percent above $1m
• Commonwealth Bank of Australia offered a 1.4 percent discount on new business above $750k
• Suncorp offered a 1.55 percent discount on new business above $150k

Refinancing rebates (T & C apply) 

• St George is offering a $1,500 rebate for all new refinances valued above $250k
• Commonwealth Bank of Australia is offering a $1,500 rebate for all new refinances valued above $250k

Alan said every bank has a different process for assessing your application and this is known as your credit score – not to be confused with your credit file:

• Your credit score is a form of ranking applied to you as a person by a lender. It is based on a range of factors unique to the lender and based on the performance of their loan book. They look at all the attributes of clients who have loans that perform to determine the types of clients they will lend to; and 
• Your credit file is a long-term record of your financial behaviour, which banks can access to help them calculate your credit score. Have you ever defaulted on a home loan repayment or electricity bill? Bought new furniture on interest-free terms? Applied for a home loan or any other finance? All of this will be on your credit file 

How your credit score is assessed could mean the difference between application approval and decline; and it will also impact how much money you can borrow, sometimes by tens or even hundreds of thousands of dollars. 

Factors lenders consider to determine your credit score. 

• Your age 
• Drivers’ licence – lenders see this as an indication of financial stability 
• Home phone number – another indication of stability 
• Number of credit enquiries on your credit file (such as home loan applications that were rejected or approved but not used; as well as purchases on interest-free terms, such as new furniture) 
• Defaults on your credit file (gas, electricity, council rates, home loan repayments) 
• Employment – lenders will look at your type of employment (part-time, casual, self-employed, contract or full-time); the industry you work in; and how long you’ve worked for your current employer. If you are full-time in a relatively stable industry and you don’t change jobs every two years, you will score higher than someone who is part-time or has changed jobs frequently 
• Savings history – lenders will consider how much you’ve saved and over what timeframe. Your ability to save indicates your ability to repay a loan 
• Other assets – includes cars, furnishings, shares etc. A strong asset base, like a strong savings history, shows you’re not wasting your income and you’re motivated to build wealth
• Loan to valuation ratio (LVR) – the lower your LVR, the better your credit score. This ties in to your savings history – the larger your deposit the better
• Residential history – lenders want to know whether you’re still living at home, boarding, renting, living in your own property etc. How long you’ve lived there is also an important indicator of stability 

He said there’s also many crucial differences between lenders in how they calculate your credit score.

Part of your credit score relates to ‘serviceability’ – that is, your ability make your repayments.

This, in addition to your equity in other assets, will determine how much you can borrow. 

• Examples of differences in how lenders assess your income (or ‘serviceability’) 
• Rental income – lenders will use 60 percent-80 percent of your rental income. Some lenders will use rental income as determined by a valuation, others will use actual rent receipts
• Other mortgage debts – most lenders now apply the benchmark rate to other existing debts, so a rate of 7.5 percent is applied to existing mortgages rather than the 4-5% you’re actually paying now 
• Credit card debt – lenders will use 2.5 percent-3 percent of your credit limit (not the outstanding balance) to calculate a monthly repayment
• Other expenses – any regular ongoing expenses will factor into your serviceability 
• Bonus Income – lenders will use 80 percent-100 percent of any bonus income
• Commission income – lenders will use 80 percent-100 percent of any commission income
• Industry allowances – some lenders won’t include allowances at all, others will use 80-100 percent of shift allowances or tool allowances when calculating income
• Overtime – lenders will generally use 80 percent of overtime income

He said you can imagine what a difference it would make if your chosen lender bases their calculations on 80 percent of your rental income, 100 percent of bonus income and 100% of your allowances compared to say, 60 percent. 

"In order to ensure your loan application is approved for the highest possible borrowings; and to avoid loan rejections which will stay on your credit file for 7 years, you need to choose the lender that will assess you the most favourably when making your next application," he said.