Home loan pre-approval is a lender’s estimate of how much you could borrow for a home loan, provided you meet certain conditions.
Home loan provider and mortgage broker Aussie revealed today it had seen a 71% increase in home loan pre-approvals from its borrowers across January to August 2020, with August seeing the highest monthly volume of pre-approvals on its records since 2014.
The lender found first home buyers made up more than half (53%) of pre-approval volumes from January to August, and were up 130% compared to the same period last year. Aussie said nearly 80% of first home buyers sought pre-approval this year, based on its figures.
New South Wales had the highest number of pre-approvals, followed by Victoria, Queensland and South Australia, though Victoria recently declined sharply due to the “challenging economic conditions” in that state from COVID-19 lockdowns, according to Aussie.
Aussie CEO James Symond said buyers were giving themselves as much certainty as they could in an uncertain environment by seeking out pre-approvals.
“All eyes will be watching on to see what the spring property season will bring this year. Based on these record pre-approval volumes, many Aussies have got their finances sorted and are ready to buy when the right opportunity comes along,” Mr Symond said.
Canstar finance expert Steve Mickenbecker said a jump in pre-approval volumes was a strong indicator that there could be a recovery underway in parts of the housing market.
“It may be that COVID-19 is not suppressing the usual bumper spring period for home buying,” Mr Mickenbecker said.
He said the interest from first home buyers in particular was a little surprising, however, given a fall in property prices was still widely expected. ANZ, for instance, still expects national median house prices to fall by 10% from peak to trough, and that Melbourne could experience the greatest fall of 15%.
“This latest data on pre-approvals suggests there are enough buyers still interested in moving into the market in the short term to perhaps soften the blow to property prices,” Mr Mickenbecker added.
“Pre-approvals, in particular for first home buyers, can be thought of quite early in the buying process, and are often used to inform decisions about the style and location of properties customers seek to buy. It could well be that the actual purchase transaction is some time off.”
Mr Symond said increased government support in recent months, as well as the introduction of government homebuyer initiatives like the First Home Loan Deposit Scheme, was encouraging first home buyers to progress their property goals in the current market conditions.
Seeking pre-approval may be worth it, whether you’re successful or not
Gaining home loan pre-approval can be useful to confirm your home-buying aspirations, and applying for it may be worthwhile whether or not that application is successful.
Mr Mickenbecker said when you approach a bank for pre-approval, there are two possible outcomes.
“One is a positive in that the bank will say ‘yes, you qualify’ which confirms that your aspirations are reasonable and you tick the credit-approval boxes,” he said.
“The second possible outcome is if the bank isn’t able to give you a pre-approval, they’ll be able to tell you what you need to work on to actually qualify, giving you an opportunity to address what the problem is.”
Mr Symond warned that applying for pre-approval can affect your credit score, meaning borrowers should be cautious about how many times they apply. He added that for the same reason, it was generally “a good idea” for borrowers to wait until they were “seriously considering a purchase” before applying for pre-approval.
Even if you are successful in gaining pre-approval, Mr Mickenbecker said to keep in mind there could be a number of things that could still impact your ability to be formally approved for a loan once you find a property to buy.
“The bank could change its policies or its appetite for certain types of loans, it might not like the look of the property you’ve bought because it might think it’s over-valued or the lender might have developed a view that it has too much of a certain location in its portfolio,” he said.
Mr Symond told Canstar each lender had its own lending criteria and assessment process on the home loans they offer that could impact your ability to get a pre-approval.
“Some common reasons why your pre-approval may be declined include not having enough genuine savings or deposit, an unsatisfactory debt-to-income ratio, a poor credit record or personal debits, if you recently had changes to your employment status or failing to provide enough documentation,” he said.