Recent lending changes by Westpac, CBA and St George are set to fuel a surge in SME owners buying property, according to the Mortgage and Finance Association of Australia.
In the past 12 months Westpac, St George and CBA announced they would only require one year of financial records as income verification for self-employed borrowers. Two years of financial records and tax returns was the previous requirement.
Westpac last week announced they would increase their lending capacity to 90% of a premise’s value for SME owners buying property, which is up from 80 % and is a clear sign of the bank’s intent to increase lending to more SMEs for property purchases. CBA also announced the same change earlier this year.
Joel Wyld, Member of the Mortgage and Finance Association of Australia said, “In the past few months we have witnessed a change in this space which is expected to surge in the next 12 months as more SME owners become aware of the changes. Several business owners still don’t know about the more lenient lending criteria. There are over two million SME business owners across Australia. It is pleasing to see that some of the major banks have relaxed their property rules for this demographic.
“In the past banks have viewed the SME demographic as risky despite many owners coming from strong corporate or trades backgrounds with a long successful working history in addition to strong equity in various investment classes. In the past, many SME owners have had to settle for low doc loans for a two-year period which has deterred them from purchasing property,” Wyld said.
He added, “The number one piece of advice given to SME owners when applying for a property loan is to ensure financials are up-to-date. Inaccuracies in financial records and bookkeeping will delay the settlement process and could ultimately determine if the loan application is accepted or declined.
“We are also witnessing a trend towards establishing property trusts and partnerships using property as vehicle for SME owners. Both of these structures have a place in the market but care must be taken when assessing income of a business if multiple owners are involved. Legal advice is also advised to minimise issues in future years.
“The time is now ripe for SME owners to capitalise on the new lending rules to secure either a dream home or business premise,” Wyld concluded.
Five tips for applying for a loan:
- Make sure all financials are up to date – if the tax returns are more than six months past the end of the most recent financial year, you already exclude more than 50 % of the available lenders, and risk not showing the true financial position to the lender.
- Be ready to explain any unusual aspects in financials to avoid delays – every business is different, and whilst you are involved in the day to day running of the business and how it is performing, remember the bank manager knows nothing about it.
- Involve your accountant – allow the broker to speak to your accountant directly to assist with explaining any extraordinary figures noted in financials. It will help in ensuring an accurate financial position is provided to the lender.
- Personal liabilities including car loans, business loans and credit card limits are all factored into the loan process. Keep liabilities to a minimum as they will impact your ability to obtain a property loan.
- Ensure pre-approval for a loan is obtained before looking for a property which is free. It is better to be safe than sorry.
