Aaron Whybrow explains how rising interest rates trap mortgage applications in progress. Lenders can reassess files at higher rates mid-process, risking decline or reduced approval. Brokers protect clients by keeping backup lenders, modelling worst-case rates, and stress-testing income and property details.
Hi everyone. You've probably been missing my face a little bit on the social media platforms and you've probably seen my business partner, Aaron Whybrow jumping in a little bit more. So I thought I would get my face out there and why not start with a little bit of an interview of Aaron. So, Aaron, I've seen you've been a little bit stressed out over the last week or two, over quite a few files in fact, and there's a little word out there called in flight applications and the impact of increasing interest rates. So can you talk to me a little bit about the, the pain points that you've been having with these applications and what solutions you've found for your clients on these?
Yeah, this, this in flight application rules are a thing that when you submit an application into a bank, they're going to have their normal turnaround time, they're going to instruct their valuer to do it, do the valuation. And at the moment where we've had some interest rate rises every month for the last three months, banks treat that differently. So we have serviceability rates, which is a floating interest rate over the actual interest rate you have. So when the interest rate rises, every bank is treating that very differently. So I had success with a client that I got frustrated about. We got into one bank and their in flight application rules is that it had to get to conditional approval to be able to lock in that assessment rate prior to them reassessing it with the extra interest. So a word of warning, if the interest rates do rise within your application time, you, you actually have to pay that rate. But what could happen is that the buffers are all eaten up and you could get right to the end and it gets declined because the interest rate rose. But this is the frustration on my part is that the bank can take all the time at once and then they make a really funky decision at the end that they're going to decline it or they're going to reduce the loan amount that you can achieve because the rate rose and they didn't pick up the file in time. And that's the problem. They don't pick up the files in time. So they make the rules related to their service level agreement, they make the rules on when they change what their response is to the independent rba. So, and I've had many conversations with lenders about the independent RBA and I'm going, yeah, they are independent, but it is your response to that to impact your in flight applications, which is the ones in the system.
So for my like what are you like, what are you doing for your clients? What are we doing for our clients? How are we protecting our clients who are coming in for new loans with new application submissions? What are you doing to protect them from these issues that we're facing where lenders, you know, timelines are going out or whatnot.
Yeah. So number one, from a company point of view, you and I talk about this a lot. And one of our office support managers is helping us find out what every lender is doing with the in flight applications. So some lenders need to get the formal approval, some need to get conditional approval, some will lock in your assessment at application time and others will look for any, if there's any material change, like job changes, pay rises, pay decreases, other debts that they find that they didn't have beforehand, they all come into the picture about how they're going to treat and assess your in flight applications. So what we've done as a business, we understand the lenders and how they are treating in flight applications and that helps us with the timing of what we're doing. The other one is the individual applications. So number one, we're brokers, so we're not locked to one bank. So we may present you options to say go to this bank, go to that bank, but we always need to have a backup. So as brokers, we have the primary application we're going on, but we always had got a backup option and that backup option was the one that helped my client because we went for the main one. They were mucking around and the timing was changing and we couldn't get hold of the right people. And when we got the right response, they changed the calculator so we had to go to the backup option. And the backup option had some nice specific requirements for the client so that we could, they didn't pass on the whole rate rise when it was less than 70% that they owed to the property and were able to get the right amount of lending even though was a little bit less than what they wanted. But we were able to get a lot more than what that current one was. And the other one is individually when we're assessing new applications. Number one, I'm asking the client what is the variability of their income or what is the variability of the property they are going to buy if it's an investment. So it might be that your employee is putting bonuses back in, it might be that you have pay rise opportunity, it might be you have promotion opportunity and that's all variability to your own personal income or you might be self employed and you can go find another customer. So I'm looking for that. And then I'm also using calculators that allow me to change the interest rate upwards. So some banks calculators don't allow that and there's some, some you would have thought that they would be allowing that in the current climate, but they're not. But there are some calculators where we can model for three months in the future and put a 1% or a 1 1/2% or a 0.25 or a 0.51. So we can give you the time you need with your figures locked in to find the right house.
So I just want to unpack that for a moment. Basically this is where we're looking at when Your rate is 2.5% but you're being assessed at 5.25 or 5.5% and we're allowing for 1 1/2% as an extra buffer on top of that as a worst case scenario. So this kind of is us looking at, we don't have a crystal ball, we don't know what the future holds. There's a 0.25 interest rate rise and then a 0.5 rate rise and then lender comes out and says they're going to increase by 0.7. So there's so much variability out there. And whilst we don't have the crystal ball, we're not experts, we don't see into the future like that of knowing exactly what's going to happen. What we are experts in is broking, it's finding the best deal, the best option. We don't want to be putting multiple applications in and affecting your credit file and you know, putting anyone in that type of situation. But I think the take home is on that. Point is we might have an application in the system for you. Our job is to make sure that the finance you are seeking is in your best interest. So number one lender application is in the system and it's going, but if it's not working in your best interest anymore, we're looking at what can we do to help you to achieve your goal. And this is where it sounds like for this client of yours, you said number one lender, fantastic, let's roll with it. It's now not working, there's too many changes, it's a bit of an issue. This is plan B, let's go with plan B. So it sounds like whilst a little bit of pain point and I absolutely heard the stresses from you in the office, it sounds like you still were able to get a great solution for your client.
Absolutely. And that's just getting it in and understanding the in flight application rules. So if you've gone out and you've seeked finance and you've come back and they done everything and right at the end they say no, I can't get you that amount of money, or they are about to decline you on the loan that you're trying to get because you didn't have enough deposit. Please do reach out to us because you need to have more than one option and you need a broker that's got a backup option even when they've got the main application in.
