With the Australian property market experiencing a surge in demand, many consumers are experiencing settlement delays due to their lender being overwhelmed, and unable to meet the contracted settlement date.
A combination of recent federal and state government support programs, as well as record-low interest rates, are considered to be the key drivers of the record number of home loan applications being received by lenders.
Through March 2021, 55,525 new lending applications were funded for owner-occupiers (excluding refinances), with a record value of $22.413 billion. As a result of this dramatically increased demand, financial institutions are struggling to meet the typical timeframes allowed for in a property settlement.
In Western Australia, it is usual to see a Contract of Sale allow 10 – 15 business days for finance approval and a further 10 – 15 business days for the property settlement. These timeframes typically provide sufficient time for lenders to process new loan applications and discharges of mortgage.
Commonwealth Bank for example (which previously recommended allowing 10 – 15 business days for a Discharge of Mortgage request to be actioned and made ready for settlement) is currently sitting at a 36 business day turnaround for a full discharge and 45 business days for a partial discharge. This well exceeds the typical timeframe allowed for in the sale of a property, meaning that sellers discharging their loan from CBA may need to seek an extension of their settlement date or face incurring penalty interest for settlement delays.
ANZ Bank is experiencing similar delays, with Chief Executive Shayne Elliott touching on the problems the bank is facing in the new loans space when he spoke to ANZ’s Half Year 2021 Result:
“Challenges remain in Australia with home loan turn-around times, particularly in the broker space, given the on-going growth in applications. While we’d almost doubled our assessment capacity, the new business we attracted regularly exceeded capacity. That means our assessment service levels in recent times have not been where we need them to be.”
As a result of delays across the board, buyers & sellers are faced with the possibility of incurring expensive penalty interest where their lender is unable to meet the contracted settlement date. Buyers may also risk having the seller terminate their contract, where their lender is unable to issue a finance approval letter by the due date.
With many of the big banks openly recognising the challenges that a hot market presents, it is understood that hiring new staff to ease the overwhelm has proven difficult. For example, in April, the number of positions advertised at ANZ reached its highest number since November 2008.
Automation and artificial technology are other options that the banks are exploring to improve processing times, reduce settlement delays and simplify the customer’s home loan experience. Westpac Bank, for example, has now completed more than 20,000 settlements using its end-to-end digital mortgage platform, Customer Service Hub. ANZ Bank is also reviewing how their processes and systems can be further automated with increased automation “a key factor”, according to Mr Elliott.
Increased manpower and advancements in technology do take time. And so, for current buyers and sellers, it is recommended that extended timeframes be allowed for, for both finance approval and settlement. To do this, it would be prudent to contact your bank or finance broker, to understand their current processing times, before writing up the Contract of Sale.
If you would like your contract reviewed prior to signing, with particular consideration given to the dates (to reduce the chance of settlement delays), contact Perth settlement agents, the team at KDD Conveyancing Services.