Understanding Loan Rejection Rates

Did you know that 40% of home loans are being declined? [Home Loan Rejection Rate Hits 40%] This alarming statistic highlights the challenges many face in securing a loan. Whether you’re a first-time homebuyer or a seasoned property investor, getting your loan approved can feel like navigating a minefield.

Why Are Loans Getting Rejected?

Unless you’ve been living under a rock, you’re probably aware that getting a home or investment loan approved has become more challenging. Successive interest rate increases from the RBA (Reserve Bank of Australia) Government-imposed speed limits on lending and the aftermath of the Royal Commission into banking and financial services have tightened lending criteria significantly. While we’ve seen similar conditions before, the current environment is exceptionally stringent.

Tips to Ensure Your Loan Gets Approved

1. Full Disclosure Is Key
   Non-disclosure of debts, whether intentional or not, can have serious repercussions. Failing to disclose all your financial obligations can require a lot more explaining to the proposed lender and a pretty high chance that your loan will be declined. This includes not only major debts but also smaller commitments like store cards or buy now, pay later arrangements like Afterpay. Remember, attempting to hide any debt is considered fraud and will be found out during the application process due to positive credit reporting in place with almost all Australian banks and credit providers.
2. Having a good credit score
   Lenders rely heavily on your credit history when making lending decisions. Some may even approve a loan based on your credit score alone, especially if your loan repayments are consistently on time and your credit report is clean – no statements necessary!To maintain a good credit score, avoid applying for multiple home loans simultaneously or ‘shopping’ your mortgage around too much. This can lead to multiple lending applications appearing on your credit file, which can reduce your score in the medium term. Additionally, be cautious with other credit applications such as credit card requests, credit increases, car loans, and personal loans, as these can also impact your credit score negatively.There are a few credit reporting agencies in Australia with the two most common being VEDA and Illion. Each reporting agency is different but a VEDA credit scors above 700 is deemed best practice – anything under 500 would be challenging to get support from a major lender in many cases. You can get a free copy of your credit report through us here at AXTON Finance to see what your report look like – just reach out via the contact us tab.
3. Get an Accurate Valuation
   When we ask the question ‘what do you think your property is worth’ we usually get the standard response of ‘well the house down the road sold for X’. It’s a great start but many lenders now allow brokers or bankers to order upfront valuations usually at nil cost to you. This can seriously mitigate the risk of your loan application being rejected, especially if your Loan to loan-to-valuation ratio (LVR) is close to the threshold that might cause a significant rate increase or add thousands in lenders mortgage insurance (LMI) fees. Keep in mind that valuations can vary significantly, it’s not uncommon that we see variances by over 10%, between different valuers so it pays not to lock yourself in with just one bank if this happens.
4. Work with a Trusted Broker
   Finding an experienced broker (10+ years experience ideally) or banker you trust is crucial. An experienced broker brings years of expertise and knowledge of market policies, which can be invaluable for different scenarios. Going directly to a bank is like asking for the best car at a Ford dealership – they can only offer their product. With lending criteria changing daily, the DIY approach to loan applications is increasingly difficult and risky. A licensed mortgage broker can navigate these complexities and give you the best chance of success – first time.
5. Have Your Documents in Order
   Ensure all your support documents are organized and complete. This includes proof of income, employment history, credit history, and any other financial obligations. Having everything ready can streamline the application process and reduce the likelihood of delays or rejection.
6. Be Prepared for More Questions
   These days, pretty much every lender is asking more questions. Be prepared to provide detailed information about your financial situation and be ready for follow-up queries. Transparency and prompt responses can help keep your application on track. Securing a loan in today’s market can be a little more challenging, especially if you choose to go it alone, but with the right preparation and support, you can improve your chances of getting approved and without the stress of a sloppy application. At AXTON Finance, we specialize in navigating these complexities and helping you achieve your financial goals. Contact us today to find out how we can assist you in securing your next loan.