Lock, Stock & Barrel: How to Keep Tabs On Creditworthiness

Do not index

Publication Status

Done

This article first appeared in The New Straits Times on 28 December, 2017.

MUCH has been said in the last two years about the general inability of the public to purchase their own homes. One of the complaints is that property prices have skyrocketed until a level out of reach by prospective investors and homeowners.

In the last two years, we have heard people sing another song. This time, it’s about their inability to secure a bank loan to finance their home purchase. They say they are prepared to invest in properties but unable to do so because they cannot secure the necessary financing. The developers complain that there are potential buyers out there, but the sales are unfortunately not coming in because of the same reason.

What has gone so wrong that there is now a whole generation of people who are not creditworthy enough for banks to lend them money.

There is really no point blaming the banks for this situation. I agree that in the last few years, the banks have tightened their lending policies. I also agree that this has perhaps led to the current perceived situation where nearly half of all potential sales fizzle out, for one reason or the other, with the inability to secure financing figuring prominently.

However, the banks are process-driven. They have a set criteria that they rely on to make a decision on whether to approve a certain loan or not. It’s not personal with them. If you don’t fall within some accepted parameters, they will not lend you money. It’s as simple as that.

So how do you ensure that you are creditworthy and will be able to secure the financing you require to make your property purchases? I am no financial consultant, so what I’m about to say next is largely premised on common sense.

Live Within Your Means

Let’s face it. The rich get richer because they earn more than they spend. If you consistently spend more than you earn, or if your spending equals your earnings, then you are not really doing yourself any favour in terms of your creditworthiness.

Pay Your Bills On Time

Bills are never going to stop coming. Every month will the same thing. What needs to be paid, needs to be paid. The smart investor knows how to create an image of stability for himself by making payments on time every month.

Make Smart Purchase Decisions

You need to understand what you want to purchase and what you can actually afford to purchase may be vastly different. The smart investor knows this and doesn’t waste precious time, energy, and resources chasing after a property purchase that he cannot possibly complete. This is usually more rampant with first-time property purchasers. They always look to buy properties well out of their reach. And then when the banks don’t lend them the required financing, they moan and groan. Always understand and accept your financial limitations, and you will have to put up with much less grief and heartache.

Cultivate The Trade-Up Mentality

I coined this word some years ago to describe a situation where the property purchaser purchased something far below his expectations, only to sell it in the future and “trade up” to a more preferred property. We need to understand that we cannot always have what we want. So we have to learn to just do with what we can afford. The property you have purchased will act as a great hedge against inflation. And when you sell it in a few years, the gains you make from your initial investment can become the deposits you pay for your next, bigger investment. And if you repeat this a few times throughout your life, you could actually end up with a beautiful piece of real estate.