Why Does House Buyers Financing Keep Falling through?

bargain huntress on 09/02/2021 - 15:49
Last edited 09/02/2021 - 17:42 by 1 other user

As I mentioned in other questions, relatives are selling house. This time there was a contract, passed inspections fine, buyers were TOO keen (they were weird), then failed at finance stage.

The house next door fell through because of financing 3 or 4 times before it sold last year. Had another relative have 2 or 3 offers on another house fall through because of finance too. Relatives are considering giving up on selling.

How common is this?

Why are people so wrong about their ability to get loans etc?

Financial

Comments

  • GG57 on 09/02/2021 - 15:53
    +1
    1. Based on your account here, it is pretty common
    2. Unless there is someone on here who has failed at getting finance for a property purchase, we won't be able to answer.
    • jv on 10/02/2021 - 08:36

      Unless there is someone on here who has failed at getting finance for a property purchase, we won't be able to answer.

      Mortgage brokers could answer the question.

      • HeWhoKnows on 10/02/2021 - 17:41

        They get given the same BS
        Probably as baffled as everyone else

  • avoidfullprice on 09/02/2021 - 16:02
    +1

    why are people so wrong about their ability to get loans etc?

    Perhaps they only look at an income and not really understand their expenses. Or they only have enough saved for deposits but not enough for other legal costs involved.

    Some people here reported they couldn't get credit cards approval despite good records. Who knows.

  • RetroGameNerd on 09/02/2021 - 16:07
    +20

    In working for a mortgage broker, I have first hand experience with this. The reasons from the top of my head are as follows:

    1. Lender turnaround times - Some lenders (big 4 included) still haven't recovered from the Christmas period, Westpac are at 33 business days to even pick up an application, when most contracts have a finance period of 42 days from signing. This has caused us to have issues with Finance Clauses expiring before finance approval. Worst offenders in my experience through this have been Westpac and Suncorp. Offering industry best rates and cashback offers and not having the staff to cover them.
    2. COVID Impact - If the client has taken a payment holiday through COVID, this can severely impact your ability to get a loan. Some lenders won't even consider you.
    3. More stringent lender requirements - Self-Employed applicants almost always require full year's BAS and 2020 tax returns when those returns aren't due to ATO yet. This can delay the process significantly. Previously, you would be able to apply on 17/18 and 18/19 returns.
    4. Channel Conflict - Further to point 1, clients can apply for the same loan with the same documentation via a broker or by walking into said bank. Said bank can have them approved in a quarter of the time that a broker can, and with BID coming in, there's interpretations that brokers should advise clients to simply walk into a branch, leaving the broker out of pocket if they have done their initial assessments.
    Edit: 5. Debt-To-Income Lots of lenders have brought in a cap on the clients total allowable debt in relation to income (Debt to Income). They aren't allowing a DTI over 6, this was brought in Q4 2020. Some lenders will go to 9, however this severely restricts options.

    Interested to see if other finance brokers would tend to agree with my experience through the last few months.

    • El-Rhi on 09/02/2021 - 18:23

      Interesting point on DTI. Do you know which banks have what limits, and are these hard limits, or it just means the loan needs to be manually assessed?

      • RetroGameNerd on 09/02/2021 - 22:43

        I'd say more than 50% consider it a hard limit. You may have some discretion if you have a good BDM but you'd want a strong servicing position and future income prospects to argue the case.

    • netjock on 09/02/2021 - 18:33
      +2

      Lender turnaround times

      There is no shortage of people wanting to borrow money. It is like even if they screw up major people will still come back for a second helping.

      • RetroGameNerd on 09/02/2021 - 22:52

        Industry bodies aren't holding them to account unfortunately. Brokers pay their fees and have no voice.

    • Pufff on 09/02/2021 - 19:19

      is st george included in your westpac comment?
      A friend of mine refinanced for cashback but it needs to settle before the end of March and applied end of Jan.
      The service itself is pretty terrible with no call backs and response to emails. The applicant needs to do all the followup.

      • RetroGameNerd on 09/02/2021 - 22:44

        Yep, it's Westpac Group as a whole, so include BOM and BankSA in there too. Pretty average all round.

        • Pufff on 09/02/2021 - 23:40

          That's shocking.
          So knowing that they're basically running a scam by giving out cashbacks that can't be honoured due to their own processes.

          edit: I've told my friend to email the lending manager because it definitely seems like a scam and unethical at best. The lending manager encouraged joining their crappy home loan package too which is a easy $400 for the bank.

          If settlement looks unlikely by mid March can you stop the refinance?

          • RetroGameNerd on 10/02/2021 - 09:21
            +1

            @Pufff: The client can pull out at any time prior to settlement, however I'd hope they'd consider giving their broker another chance. I can guarantee that the broker would have had no clue that the situation would descend into the utter chaos that it is now.

            • Pufff on 10/02/2021 - 10:25

              @RetroGameNerd: Oh sorry I was only referring to the bank not the broker.

              Worse case scenario would be to miss the cut off for the cashback, get charged the package and all the other associated fees. Which if it did go to that would be worth going to the ombudsman just to drain their resources and give them a taste of their own medicine.

              It appears the lending manager just takes his time with call backs and replies to basic emails (3 business days and counting).

              I myself had the worst CC application process with st george and ended up telling them to get stuffed and went with ANZ. It would seem the company is rotten throughout. I generally don't have high expectations of banks to begin with but they take the cake.

              • RetroGameNerd on 10/02/2021 - 10:35

                @Pufff: We tend to avoid the big bangs where possible, but when they're offering $3-4000 cash back and red hot fixed rates they can be difficult to avoid.

                If you're looking for customer service, I can recommend ING and Macquarie Bank. They're fast on the turnaround and have excellent post-settlement customer service.

                • Pufff on 10/02/2021 - 10:41

                  @RetroGameNerd: Well that was probably the main reason they went with the offer.

                  Would my friend be liable for the fees that SGB charge or possible government charges if they don't go through with the settlement?

                  I myself moved from anz to nab and nab were good although anz dragged the process out by a few weeks.

    • serpserpserp on 09/02/2021 - 21:51

      DTI is based on gross or net income?

      • RetroGameNerd on 09/02/2021 - 22:44

        Gross income :)

        • serpserpserp on 10/02/2021 - 11:37

          Then its been at around 6x for 5 years or so. It's probably more that now it might be gross income - living expenses which might make a 150k earning family miss out on that 800k-900k house.

    • [Deactivated] on 09/02/2021 - 22:36

      How is someone that has switched from permanent employment to self employed treated, is their income under previous permanent employment taken into consideration?

      • RetroGameNerd on 09/02/2021 - 22:45
        +2

        I'll admit I'm not the most versed on this scenario but I'm happy to look into it for you tomorrow!

    • annestewart on 10/02/2021 - 10:55

      What is BID please?

      • RetroGameNerd on 10/02/2021 - 11:02

        Best Interests Duty - A new regulation brought in effective January 1 as a result of the Royal Commission, which changes the way that brokers recommend loan products for the client. It's not necessarily what it says on the tin, but the idea of it is to ensure that the broker is acting in the client's best interest, which we believe can be quite subjective rather than objective.

    • bargain huntress on 10/02/2021 - 20:52

      is it a bad time to be selling?
      is it a bad time to be buying?

      • RetroGameNerd on 11/02/2021 - 17:18

        I'm probably not the best person to ask unfortunately. Perhaps ask your relatives selling agent if there's anything weird going on in the property market in their area.

    • SirFlibbled on 11/02/2021 - 16:13
      +1

      Look almost 4 months for ANZ to refinance my loan mid last year..

      • RetroGameNerd on 11/02/2021 - 16:46

        At least they had the excuse of adjusting their systems to suit their staff working from home through the peak of the pandemic in Oz.

        We sent quite a few clients there because of the red hot (at the time) fixed rate and best-in-industry cashback offer. That was when it was an approximate 2 week turnaround which did end up being up to several months.

        Hope you at least got the cashback for your troubles.

        • SirFlibbled on 11/02/2021 - 19:09

          Yep less the additional $2K in mortgage payments I made over those 4 months.

  • stratbargain on 09/02/2021 - 16:10
    +4

    Possibly a lower socio-economic area or an area on the outskirts of a major city where everyone wants to buy a newish home and they are overvalued?

  • PissLUR on 09/02/2021 - 16:13
    +1

    broker's issue. they usually over-estimate their clients' lending capabilities.
    or clients hide important bits from them.

  • Quantumcat on 09/02/2021 - 16:47
    +3

    The bank might value the house at less than what they want to pay so the bank asks for more money upfront, and they might not have it.

  • morse on 09/02/2021 - 16:53
    +3

    I think there’s often a clause that says you have to have a reason to withdraw once your offer is accepted. Usually building check and finance. They might have just changed their mind but are using finance as an excuse, ie they might actually be able to get finance but it would be able to get a bank to reject them if asked for proof.

    • Seraphin7 on 09/02/2021 - 16:57

      ^^This.

      Is the finance falling through, or is the deal falling through "due to financing issues"? Big difference …

      Hard to comment on without getting into specifics.

    • bargain huntress on 09/02/2021 - 18:30

      is there anyway to check if they are telling the truth about financing? and if not enforce the contract?

      • JimmyF on 09/02/2021 - 18:38
        +1

        You normally have to provide a copy of the rejection letter/email from the bank saying you can't get finance etc.

      • morse on 09/02/2021 - 19:57
        +1

        I don’t think so. I think it’s easy to get a letter to say you can’t secure finance. They can say their circumstances have changed and that they have p more outgoings/less income. You’d have to take legal action which would be unlikely to be successful unless you had pretty good evidence - probably not worth it. I can see how it’s frustrating though.

  • Drakesy on 09/02/2021 - 16:59
    +4

    Combination of buyers with FOMO and people making ridiculous offers just to secure a house, only for the bank to turn around and value it at 10% less than what they paid - goodbye 10% equity.

    People with 5% deposits thinking they'll be able to buy a $1million property.
    Increased lending laws (basically the reason why we ended up in this bubble in the first place).

    • JimmyF on 09/02/2021 - 18:39
      +3

      People with 5% deposits thinking they'll be able to buy a $1million property.

      Oh god this. I've seen so many people who saved $20k and think they should be able to buy a $1m house only to have a rude shock!

    • Pelicannn on 10/02/2021 - 00:13

      100%. Banks are usually asking for 8% deposit because the 3% will be needed for things like LMI and stamp duty if you aren't getting any exemptions. 5% deposit from the Big 4, unless you are buying a very cheap property relative to your income, it ain't going to happen.

  • elgrande on 09/02/2021 - 17:06
    +2

    Any large power lines near by?

    • Bisah1342 on 09/02/2021 - 17:46

      does that impact the sale you reckon? how close?
      100m?
      500m?

      • elgrande on 09/02/2021 - 18:57
        +1

        Within 50 metres it can start to impact your ability for lenders mortgage insurance.

    • bargain huntress on 09/02/2021 - 18:55

      even if there were, why wouldn't they look in the sky before signing a contract?

      • miwahni on 09/02/2021 - 23:30

        Perhaps they DID look up, and weren't bothered by what they saw. Then the bank looked up, and said NO, not within 50 metres of the boundary.

        • Quantumcat on 10/02/2021 - 08:31
          +2

          Yeah this is what happened to my house - 3 or 4 people tried to buy it in the year before I got it, but couldn't get finance because of the power lines. They didn't care about the power lines but the banks did.

  • brendanm on 09/02/2021 - 17:35
    +1

    Perhaps it's simply the bank doesn't value the place as high as the buyers do, therefore the deposit they had is not enough, therefore failed finance.

  • thatonethere on 09/02/2021 - 17:52
    +1

    It is also a good cold feet excuse "soz can't get a loan"…

  • plmko on 09/02/2021 - 18:32
    +1

    Clear case of how overpriced homes are.

  • netjock on 09/02/2021 - 18:46
    +5

    The house next door fell through because of financing 3 or 4 times before it sold last year. Had another relative have 2 or 3 offers on another house fall through because of finance too. Relatives are considering giving up on selling.

    This country is running out of credit worthy borrowers pretty quickly. If you think the boom has been going on for so long and everyone's been borrowing how many more people are sitting on a mountain of equity?

    Say in 2000 you are only $80k and borrowed 6x your salary $480k (on a 600k property) at 3% after 20 years you still owe $210k. Say it tripled. On $1.8m less $0.2m you have $1.6m. There would only be 2 reasons you would sell. Trade down or trade up.

    Even if you doubled ($160k) your salary and borrow 6x , $960k at 2.5%. Your monthly payment is $4k which is half your take home. Plus the $1.6m from your sale you can buy $2.6m home which was worth $0.9m back in 2000 (assuming it tripled).

    Banks evaluate people on cash flow being able to service the debt. Throw in a few negatively geared IP then you can borrow even less.

    • ribze1 on 09/02/2021 - 21:21

      Great break down

  • [Deactivated] on 09/02/2021 - 18:58
    +1

    Is it possible that they are agreeing to purchase due to hastiness / FOMO and then using the finance approval clause of the contract as a way to get out of it once they are second-guessing their decision?

    • bargain huntress on 09/02/2021 - 19:02

      i don't understand them, they are weirdos

      they were very keen for many weeks

      they wanted an inspection before a contract which is almost unheard of here apparently

      they wanted access right after it passed inspection to measure outside for work they wanted to do

      when relatives said no they came anyway and peered through the gate for half an hour

      real estate agent just revealed (assuming he is telling the truth) that they told him they had 500k over agreed price to spend

      • Quantumcat on 10/02/2021 - 08:34

        Maybe they lost their jobs?

        • bargain huntress on 10/02/2021 - 20:48

          it was an organisation that was buying it
          so i don't think that would apply… would it?

  • jv on 10/02/2021 - 08:37
    -2

    Why Does House Buyers Financing Keep Falling through?

    COVID

    • bargain huntress on 10/02/2021 - 20:47
      +1

      what's that got to do with it?

      • SnoozeAndLose on 10/02/2021 - 20:51
        +1

        Economic is affected by CoVid, so does people's job, today can earn 200k tomorrow can being made redundant. Bank don't want bad debt

      • jv on 11/02/2021 - 00:28

        Anyone who took up the offers to defer loan repayments during covid got a black mark on their credit history.

        • bthaddad on 11/02/2021 - 15:14
          +1

          You really should just avoid stepping into conversations where you have no idea what you're talking about.

          • jv on 11/02/2021 - 15:54
            +1

            @bthaddad: Except that I know exactly what I am talking about…

  • Oz8argain on 10/02/2021 - 10:36
    +1

    go for auction instead so they can't back out without loosing money

    • GG57 on 10/02/2021 - 10:46
      +1

      Unless the winning bid is this persons "friend"
      https://www.ozbargain.com.au/node/601669

    • bargain huntress on 10/02/2021 - 20:47

      i have suggested that

      auctions aren't a big thing in this area, plus it's sort of a niche property

      so will it still work? i don't want them to give the place away

  • HeWhoKnows on 10/02/2021 - 17:49
    +1

    I heard some banks placing a cap of $1.4M on total loans to any one person regardless of whom they are with and regardless of income and loan ratios.
    Also they wont allow you to refinance for whatever reason so locking you into higher loan rates.

  • LFO on 10/02/2021 - 22:23

    Why are people so wrong about their ability to get loans etc?

    Chances are (potential) buyers change their minds about that particular purchase, out of many many others they have express interest for. To end up what they think is best.

    In other words, it might be a very good excuse for NOT going ahead with no further questions (from the buyer) added, or explanations needed.

  • Fever4shakin on 12/02/2021 - 09:41
    +1

    I'm going through the approval process now but for land + construction. I'll throw in my 2 cents about what's messed up in the system.

    1) online borrowing calculators are not accurate/ used correctly by the average person. Most people will chuck in their income, debts and the interest rate they expect to be paying. This is not how the bank will assess you, they apply a buffer interest rate on top of the current rate.
    2) credit file doesn't get updated as timely as it should, if at all. I had to verify the past 3-4 years worth of credit enquiries to say if they proceeded or not, and if they are closed or were current. I then later had a credit card customer service person tell me this information was all put onto my credit file when I needed proof of a cc product switch.
    3) the debt to income assessment. As mentioned by a previous commenter - this has been the biggest PITA of the whole process. Basically had to nuke every line of credit (bar a small credit card) before applying. It's understandable but also in today's age of fast credit - car loans, personal loans and the growth of afterpay / zip pay type services etc. Many people don't have the foresight or prior warning that these things will be issues to the bank. Also the Americanised perception that you "need to build credit" when in reality in Australia having any line of credit works against you.
    4) Banks rigorous analysis of transactions and spending. Want to live your life and buy some 'luxury' items above your 'essential' needs. Well too bad, the bank will comb through your statements and assume everything is essential and ignore your capacity as a human to cut back.

    Overall I very much welcome the government's legislation on winding back responsible lending laws. It's essentially just making it harder for everyone and denying people the ability to make their own financial choices to an extent.

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