Ask A Mortgage Broker: Why Are Banks Secret About Test Rates?

Glen McLeod is director of Edge Mortgages. It answers readers’ questions about home loans, whether you’re a newbie just entering the market or someone who already has a loan and wonders how best to handle it. If you have a question, email [email protected]

Why are banks so secretive about how they assess people for loans? Is it to prevent people from playing with the system? Or do they not put off customers?

In today’s environment of rising interest rates and seemingly falling house prices, banks need to ensure they are responsible in how they lend money to customers.

Banks keep details of how they value loans for a number of reasons. Mainly because the information is commercially sensitive and they don’t want to give out information to help other lenders.

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How they set their requirements may be determined by their appetite for loans at the time. How they see the legislative requirements and I imagine the profit margin depends on the availability of funds. It is a way to turn on and off the flow of loans.

All in all, the reality is that there is no secret to loans. It breaks down into several factors:

Glen McLeod: Banks must ensure they are responsible

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Glen McLeod: Banks must ensure they are responsible

Security: The type of property the lender would take as collateral tends to dictate the loan-to-value ratio they will go up to the property. What they will lend on a standard residential home versus a serviced apartment varies widely.

Repayment ability: Your income, fixed commitments, and spending habits are in the spotlight. With the new CCCFA rules, this has become more evident over the past six months or so.

Willingness to Repay: What do your credit history and bank statements say about your ability to manage your money? Do you have unauthorized overdrafts on your bank statements or have you defaulted on loans in the past?

As a borrower, the best thing you can do to be ready to borrow money is to reduce all your short-term debt, understand your spending habits, and make sure you manage your bank accounts and credit history. Save as much deposit as possible to be prepared. The less money you have to borrow, the higher your financial capacity will be.

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