On 29 November 2012, (under a Gillard Government) the Australian Parliament approved stronger laws for Banks and other creditors to obtain more comprehensive credit reporting for individual’s credit-related information.
While these changes will not commence until March 2014, you should be aware that from December 2012 if you fail to make loan or credit card payments on time, it may affect your ability to obtain credit in the future. This is because your repayment history information can now be collected where it previously was not available. This much more detailed information will will now appear on your credit report from March 2014.
The increased scrutiny applied to credit card defaults will affect millions of people because everyone has a credit card and many people regularly default on their repayments. This would logically affect those who may have been less careful about their use of credit cards who may find buying a home or property impossible via banks, or at least subject to a higher qualifying criteria, deposit, interest rates and security.
So what are the the best alternatives to buying property without such prohibitive penalties? We feel you might give these options some thought:
- Save (or win lotto) the entire purchase amount before buying (good luck!)
- Borrow the money to purchase from your family (Know a wealthy Uncle?)
- Attempt to borrow from a non-bank lender like a legal firm or funds manager
- Find a Government scheme that will lend you the full amount you need to buy the property
- Have someone else borrow from their bank and give you the money for the property
As you can see, the options listed above are not available to most people and even non bank lenders will check your newly provided Repayment History thanks to the new laws. However, having someone else borrow from their bank and give you the money is more common than you may think. Vendor finance falls into this category and has been used for years to get people into property. It would include someone selling you their house on similar terms as a bank, but without the strict application and qualifying obstacles.
Depending upon the buyer’s circumstances, getting a loan from the Seller is probably a better alternative to bank lending because they already hold the security which is the property. If the property market continues to provide the benefits to buyers it always has, people will continue to seek its investment, but for the millions of people who will now be seen as bad credit risks due to new reporting laws, a safe alternative to bank loans will be needed. We see the Vendor Finance option as a flexible funding tool and way forward for people who cant qualify for a bank loan.
