August cash rate: are pre-approvals worthwhile in a changing-rate environment?
Today, the Reserve Bank of Australia (RBA) chose to hold the cash rate at 4.1%. This is the second month in a row the Bank chose to hold the cash rate following positive signs in inflationary data.
With the uncertainty around the future of interest rates - whether they will keep increasing or have reached their peak - we are regularly asked about limitations around pre-approvals and whether they are worth getting.
In short, pre-approvals are a good idea if you are serious about buying property. Here is why.
Pre-approvals:
- give you confidence a lender is satisfied with your current situation to lend you the money you need.
- provide an understanding of how much you may be able to borrow.
- show real estate agents and vendors you are a serious buyer and ready to purchase.
- can speed up the process of getting your loan approval as the lender already has your information to make the final assessment.
- remove some of the stress when your offer has been accepted as you have already completed a lot of the paperwork and submitted key documentation.
In saying this, there are some limitations to pre-approvals to be aware of. A pre-approval is a good indication of your borrowing power and that the lender is happy to lend to you at that time. However, it is conditional, based on your circumstances and the interest-rate environment at the time of the application. This means if anything changes between the time you received your pre-approval - either within your circumstances or if there have been significant changes with interest rates - your final application can be impacted. Small changes to interest rate is unlikely to impact your pre-approval. That said, we will work with you to do everything in our power to get your finances across the line.
How long does a pre-approval last?
The timeframe a pre-approval is valid for depends on the lender. In general, it is around three months, but can be up to six. However, if your circumstances change or there is a change in the cash rate, it is a good idea to reach out to your broker for a chat to determine if your borrowing power could have been impacted.
If your pre-approval is approaching its expiration, speak to your broker to discuss your options including applying for an extension or a new pre-approved product.
Making an offer
If you find property you would like to make an offer on, reach out to your broker to discuss whether there could have been any changes to your borrowing power and the range you may want to offer within. Your broker can also determine whether the property you are interested in falls within the lender’s criteria and provide a free property report that shows recent similar transactions nearby.
It is a good idea to include a finance clause in your offer - usually around 10 days. If your offer is accepted, speak to your conveyancer or solicitor to ensure you are happy with the contract and any conditions, such as building and pest inspections, that are included.
Keep in mind if you are bidding at an auction, your offer is unconditional and binding with no opportunity for a finance clause.
If you have any questions - reach out for a chat. And if you’re thinking about buying property, make an appointment to get your free property-buying plan in place.