Strategies for Managing Multiple Loan Pre-Approvals

Strategies for Managing Multiple Loan Pre-Approvals

The Australian property market is presenting significant challenges for prospective home buyers. Many find themselves in a cycle of securing multiple loan pre-approvals due to the difficulty of finding suitable properties within the given timeframe. Recent research indicates that nearly one-third of borrowers face this issue, highlighting the broader struggles within the market, particularly as property values continue to rise.

The Dilemma of Multiple Pre-Approvals 

A key finding from recent lending studies highlights the growing difficulties home buyers face. A significant portion of buyers—around 33%—need to secure multiple pre-approvals during their property search. This is largely because the window to find a property before a pre-approval expires, typically around three months, is increasingly inadequate in today’s market conditions.

This situation is exacerbated by the lack of affordable housing. With property values on the rise—data from CoreLogic indicates that house prices have been climbing for 18 consecutive months—buyers are finding it harder than ever to find a home that fits within their budget and meets their needs. The prolonged search has led to many pre-approvals lapsing before a suitable property can be found, forcing borrowers to go through the process again.

The Impact of Rising Property Prices

The rise in property values is not just a matter of statistics; it has real, tangible effects on the decisions and sacrifices that prospective home buyers must make. Surveys of over 1,000 consumers found that 62% of respondents reported that their property search took much longer than anticipated. This extended search time can be frustrating and costly, as each new pre-approval might come with different terms, potentially higher interest rates, or stricter lending conditions.

Moreover, the research highlights that 82% of buyers have had to make significant compromises on their buying plans due to the challenging market conditions. These compromises include:

• Buying in a regional area or further from the city (60%)
• Purchasing a smaller house (50%)
• Opting for an apartment instead of a house (35%)
• Choosing a duplex (23%)

These compromises reflect the broader market trends, in which buyers are increasingly forced to adjust their expectations and make tough decisions about where and how they live.

Rising Loan Sizes Amid Economic Pressures

The latest data also sheds light on the rising loan sizes that Australians are taking on to keep up with the escalating property prices. Nationally, the average loan size rose by 9% year on year (YoY), reaching $594,864. This marks the second consecutive quarter of growth in loan sizes, underscoring the increasing financial burden on home buyers.

Notably, the rate of increase in loan sizes varies across different states and territories. In South Australia and the Northern Territory, loan sizes have surged rapidly, with an average loan submission size of $555,985 in the June quarter—an increase of 17.1% YoY. Queensland follows closely, with an average loan size increase of 13.8% YoY, bringing the average loan to $554,842.

In contrast, New South Wales (NSW), the Australian Capital Territory (ACT), and Victoria/Tasmania continue to have the largest loan sizes in the country. The average loan size in these regions stands at $689,272 (up 7.4% YoY) for NSW/ACT and $614,115 (up 3.4% YoY) for Victoria/Tasmania.

The Cost of Living and Borrower Sacrifices

The rising cost of living in Australia is another factor placing pressure on borrowers. Recent research indicates that 83% of borrowers are making sacrifices to manage their loan repayments, an increase from 78% in the March quarter. These sacrifices often include cutting back on discretionary spending, postponing renovations, or even reconsidering the timing of major life decisions like starting a family.

For instance, 39% of current mortgage holders had intended to undertake major renovations within the first year of purchasing their property. However, these plans have been postponed due to budget limitations and the rising cost of construction materials and labour. This trend highlights the financial strain that many Australians are feeling as they navigate the complexities of homeownership in a high-cost environment.

The Outlook for Interest Rates and Borrower Sentiment

Despite these challenges, prospective home buyers are glimmering with optimism. Recent surveys reveal that 83% of prospective buyers feel positive about entering the market, up from 70% in the previous quarter. This increase in optimism comes even as borrowers anticipate further interest rate hikes.

The survey found that 61% of borrowers expect another rate hike by the end of 2024, up from 24% in April. This expectation shift is largely due to the rhetoric from the Reserve Bank of Australia (RBA), which has dampened hopes of a rate cut anytime soon. The central bank’s focus on controlling inflation means that interest rates will likely remain higher for longer, a scenario that prospective buyers are beginning to accept.

Recalibrating Expectations: The Right Time to Buy?

Industry experts note that buyers are recalibrating their expectations around interest rates and the concept of the “right time” to buy. With conflicting predictions on rate movements—ranging from forecasts of multiple rate cuts in 2024 to speculation that rates may not fall until 2025—many buyers are beginning to recognise that the best time to buy might simply be when they are ready rather than waiting for the perfect market conditions.

This shift in perspective is crucial in a market where waiting for the “perfect” moment could mean missing out on opportunities altogether. With property prices continuing to rise and the potential for further interest rate increases, the importance of being prepared and making informed decisions cannot be overstated.

Key Takeaways: Navigating the Australian Property Market

The Australian property market can be a monster at times, with rising property prices, increasing loan sizes, and the cost of living all contributing to the difficulties faced by prospective buyers. The need for multiple pre-approvals, the sacrifices made to manage loan repayments, and the recalibration of expectations around interest rates are all part of the complex landscape that buyers must navigate.

However, despite these challenges, there is still a sense of optimism among those looking to enter the market. By staying informed, being flexible with plans, and understanding the realities of the current economic climate, buyers can position themselves to make the best possible decisions for their financial future.

In this environment, the role of mortgage brokers and financial advisors becomes even more critical. With their expertise, buyers can better understand their options, secure the best possible loan terms, and ultimately find a property that meets their needs, even in a tough market. As the market continues to evolve, staying informed and adaptable will be key to navigating the path to homeownership in Australia.

If you’re looking to avoid the stress of obtaining multiple pre-approvals before securing your loan, get in touch with our team of expert home loan strategists. We can help provide a streamlined and enjoyable experience from pre-approval to even beyond settlement. Our valued clients have access to a number of excellent resources, such as financial advisory, lending insights, regular mortgage reviews and more.We’ve helped countless Aussies open the doors to their new homes with ease. Let us help make your home buying journey enjoyable.