Why Cash (and Cashflow) Is King!
In the past, you could expect a loan application to take a couple of weeks to be processed and have the loan in place, ready to build, within 28 days of signing your building contract. These days, you are looking at months of back and forth with multiple lenders as they ask for more and more information and continually change the goal posts mid application. Be prepared to have to hand over all of your bank and credit card statements for them to analyse what you spend down to the last cent. Perhaps also be prepared to let them know what colour underwear you plan to wear on Thursday in three weeks time!
It appears that lenders are less likely to take into account equity and security as part of determining the level of risk involved in them lending to you. It seems to be all coming down to serviceability. Does your cashflow allow you to make the monthly repayments on time, every time; on the fully drawn down amount of the loan. The best way to get around the current lending crisis is with cash and cashflow.
To put yourself in the most attractive position to the banks, you will need to have cash readily available to service the loan. When combing through your bank records, lenders do not appear to differentiate between essential spending (food, clothing, shelter, utilities) and discretionary spending (dining out, Netflix, holidays …). You will need to demonstrate that after your everyday expenses are deducted from your income, there is enough left over to service the loan.
To do this, you may need to look at paying out some existing debt (such as credit cards) and then getting rid of them. Even if you have no balance owing on your credit card, lenders may still count the full credit limit in their debt equation; as you are able to draw on it at any time before, during or after they offer you the loan. Also, be prepared that banks will want guarantees from not only from Directors, but from all of those involved in the building contract … including unit shareholders if the contract is in the name of a Trust.
With the current COVID-19 recession, the government have instructed banks to ‘make money flow’. However, banks are in the business of making sure they have all of their bases covered; especially in the current climate, with the shadow of tenants ability to pay rent affecting the landlord’s ability to pay the mortgage.