Loan Rejection: The Unstoppable RE Market Killer’s 3 Deadly Allies!
- Loan Rejection: The Unstoppable RE Market Killer’s 3 Deadly Allies!
A common mistake that too many property buyers are often making is to overestimate their own “bankability” and ending up with a rejected loan and a broken dream!
The above, unfortunately, has been happening since long and not only in Malaysia. Many countries around the world have and are experiencing high housing loan rejections due to numerous factors.
In this article we will analyze together the main reason for a mortgage to be “rejected” and see whether there might be any viable solutions or, at least, understand the root of each cause and, consequently, finding a tool to counter a possible denial from banks. Another interesting reading on this can be found here, interesting g tips and analysis.
The First Pandemic Loan-Approval-Killer-Partner
With the covid-19 pandemic having infected more than 110 million infections and 2.5 million deaths and, kneeled the world’s economies as never happened before, it is quite clear that the pandemic has most probably be the major cause of housing loan rejections, at least since March 2020
Of course, loan rejections have happened not because of the pandemic itself but due to the “economic downturns” triggered by the Great Lockdown!
Governments and financial institutions from all around the world, since April 2020, have been doing their best to reduce the highly negative impact of the Great Lockdown on middle- and lower-income households through “financial shock-absorber” such as loan moratorium of three up to six months and several interest cuts. In Malaysia, Bank Negara has and is adopting “rescuing measures” to enable a fast re-start of the economic engine on the nation, here can read about the latest ones.
The intention of these easing measures was to allow all households to save that 30/40% of their budget, normally dedicated to various loan repayments such as mortgage, personal loan and car loan, for the upcoming trying times which were, and still are, shadowing the skyline of most countries.
Unfortunately, with the moratorium kicking in, most families, experiencing the boredom of being “jailed” in their own houses, have instead been using the extra available cash towards different destination than the piggybank.
In Malaysia, after the six months loan moratorium, households were still in such tight cashflow that the government and Bank Negara Malaysia had to request all banks to consider a possible further extension of the “loan repayment holiday”.
Banks started looking at loans restructuring for the worst cases.Putting ourselves in the shoes of a bank, would we easily approve loan applications in such a market situation and with still very clouded skies and stormy financial and economic growth weather? Of course not!
We have already identified the first reason for such high loan rejections, “Market Outlook Fear”!
The Second Pandemic Loan-Approval-Killer-Partner
As far as the first loan-killer drive comes from the banking sector, also the second, somehow, is linked to the money institutions as it comes from Valuers.
Every time an individual applies for a housing loan, banks appoint a valuation firm to give them a “certified” value of the property. In “bull run” times valuers are quite optimistic and positive; this generates realistic but uptrend valuations.
Developers are also approaching valuers to have a pre-empanelment official valuation of their planned selling on per square foot basis. As above, the market condition, sentiment and outlook are heavily affecting the valuers’ mood and, at the end of the day the certification of “current market value”.
Within reasonable ups and downs the above has been regulating the market pretty well with both side of the equation being satisfied about the outcome RM/psf.
Since March 2020, though, the Malaysian property market, already plagued by overwhelming numbers of overhang and unsold residential units, has fallen in a down moving spiral boosted by the impossibility of generating reliable outlook scenarios.
The Covid-19 Pandemic, which imposed a sudden halt to the economic growth generating engine of the world, has showed off as highly unpredictable and almost unstoppable. This, added to previous serious oversupply situation, has placed valuers in uncharted waters and, as consequence, values have been calculated using extremely conservative parameters.
Outcome of the above on the loan side, unluckily, has been a generalized slash of margin of financing. This fact, added to a over precautionary behavior of banks, unfortunately, have brought the loan approval ration as low as during the 1997 financial crisis and even below that very low tag!
In conclusion we can say that the fear of “unpredictable” market conditions has been and is the second Loan-Approval-Killer in this case!
Third and last Loan-Approval-Killer-Partner
For the last of our “most wanted” list of Loan-Approval-Killers, we do not need to do any extended research, this insidious killer is right here inside us, it is called ego and/or being afraid to ask!
Very often it has been happening that, even during “bull run” property market situations, property buyers were complaining about housing loan rejections and so did several developers!Unfortunately, the most normal cause of a loan reject is generated by us.
Too often, property buyers, once placed the booking for their dream home, are directly taking care of applying for the related housing loan without taking care of few essential and “loan-application-saving” tips normally given in public talks or countless article.
Let’s go through the fundamental together and, hopefully, this will help some of you in avoiding these mistakes.
Get ready to apply for a housing loan
When a property buyer, be it for investment or own use, decide that the moment has come to buy the desired unit, the first thing should be taken care of is to have a “bankable” profile.
Banks are rating all clients in terms of punctual payment of dues (this nowadays includes, besides loans and credit cards, also PTPTN as study loan utilities bills and recently even management fees). In other words, let’s make sure the outcome of our financial IC, called CCRIS, is perfect.
Banks are also looking at how the saving or current account is handled. A client receiving RM7,000 as pay-slip every month on the 28 and, withdrawing RM6,800 on the first/second day of the next month is looked at with some question marks.
If a person has had “disturbing matters” with a bank such as closing of the account or previous bad record for extended non repayment of loans or credit card cancelled, it is extremely important to have all the copies of the settlement and a “release letter” normally issued by the bank.
Recent refinancing or restructuring of loans are also often looked at with a suspicious eye by the bank system. Always better to get good advice by independent sources on this matter.All the above, plus few more details which are different from bank to bank, will allow our property buyer to get ready for a “winning loan application”.
Do not shoot all your bullets at once!
The following is, by far, the worst mistake that most loan applicants are committing. Being very honest I also did it, thinking that “Oh I know for sure how to get my loan approved!”.
Many years ago, I did, while completing the booking for the purchase of a residential unit, prepare and apply contemporaneously to most of the available banks thinking, either one will approve and, I’ll get a stronger negotiating power!
Silly me, the final result, was a total failure with all banks but one rejecting and, the only one approving was the most expensive in terms of interest!
Morale of the above, do not shoot all bullets at once, much better go for one by one while understanding what the possible reason of rejection was and, doing whatever possible to find a remedy.
Coming to the end of this long article, the question which comes automatic is, any solution available to this “Loan-Approval-Tightening” situation?
The best option available: use experts at zero cost!
Every challenge has a way to be won or, there is always a solution. With this in mind, ProSales has been recently partnering with a super team of experts on housing loan to ease this difficult part of the property buying journey.
Plenty on news, to be read and watched, about fully virtual experience property purchasing experience but, when it comes to banks and loan applications, it all goes back to square 1!
Well, not necessarily! Nowadays, thanks to tech solutions proposed by Proptech and Fintech, they have joined hands on this, it is actually possible to step forward and complete the journey in a fully digitalized way.
On top of this, isn’t it that when we feel uneasy or sick the first thing we all do is to go and see a doctor? Health is definitely the most precious of all our “given assets”, without it no way we can progress and scaleup our lives and businesses.
Then what about properties? A shelter is within the first, basic and essential needs of every human being and it should be looked at, and then purchased, making sure that all the steps are in the right direction!
At the end of the day, obtaining a loan for our dream home or investment, is the only way to complete our journey, at least for the greatest part of people!
Accepting a housing loan offer is signing off a contract with a financial third party that, for the next 30/35 years, will take away a big slice of our sweat earned monthly money! Why not asking an expert, such as a highly professional mortgage broker, to help us out?
This is what has brought ProSales to join hands with LoanPlus, a well- and long-established mortgage broker, specialized in helping property buyers going through the final and very often crucial step of their property journey, applying for a loan with high chances of seeing the application approved.
Being ProSales an end-to-end-property-solution, also the loan related part had to follow the virtual mode. LoanPlus has developed a fully virtual tool which allows their clients to walk through the application-mine-field from the comfort of their house making sure that everything related to the loan is going to be fully explained and analyzed.
From the “financial IC” of the buyer to which bank is the more suitable to her/his financial profile and with the most appropriate conditions or the best interest.
Almost forgot to mention the best part of it, all of the above will not cost you a single cent!
“Resolving a challenge is, most of the times, all about having the right strategic partners!”
Happy virtual property buying journey to all, drop a comment below to let us know if this article has been useful for you and what else we could do to help you in easing your property & loan journey!
About The Author
The opinions expressed in this article are solely of the author, Dr Daniele Gambero.
Dr Gambero has been an expatriate to Malaysia from Italy, since 1998 and has more than 35 years of real estate experience. He is the co-founder and group CEO of REI Group of Companies, the Co-founder of Propenomy.com and the deputy president of the Malaysia Proptech Association.
In the past 10 years Daniele, as international and TEDX speaker, has engaged several hundreds thousand people talking about Property, Economy, Propenomy, Digital Marketing and Motivation. He is also a bestselling author and columnist on several magazines and main stream media. You can reach him directly through his LinkedIn page here