The first two months of this financial year has seen an influx of clients wanting to refinance mortgages. As a result, we have been incredibly busy in what has traditionally been a slow start to the tax year for us Accountants.
How does going for a mortgage result in more work for an Accountant who does not do mortgages, you ask? All banks want to see current financials to support loan applications and that’s where we come in. Borrowers need to prove that their levels of income are what they say they are, and so the banks rely on the one source of information which can really substantiate those applications forms: Tax Returns!
These days’ banks want to see, not only the tax return and financial statements, but also the Notices of Assessment issued by the ATO after processing the tax returns. The reason for this is that in the past people have lodged an application with a tax return showing one figure for income and then lodged a return with the ATO showing a lesser income figure so that they pay less tax. Banks are now relying on the ATO declared income for calculating affordability, which obviously impacts on a person’s borrowing capacity.
Usually people wait until they are in the midst of a purchase or cash flow difficulties to start a loan application and then the bank requests up to date financials. Whilst we do all we can to accommodate our clients, we can’t always respond immediately.
A set of accounts for a company and the directors can sometimes take up to a week to prepare, sign and lodge. The ATO can then take up to 4 weeks to process the returns and issue Assessment Notices… and that’s assuming you’re not one of those random returns held up for audit review purposes!
What sounded like a simple, straightforward exercise in applying for a loan when first talking to the bank, and should result in you getting your funds in a week or so, suddenly has the potential to drag on for about 2 months or more! The stress this causes everyone is incredible and if you need the funds to settle purchases, it affects those people too.
The moral of this story is that:
- You need to plan ahead! Talk to your Accountant about your current situation and future plans and requirements. This way, they can schedule your work early and give you a financial pack to take with you.
- Be realistic about the length of time it will take to actually get the cash and allow for the contingency that it may take longer.
- Don’t commit to expenditure until your loan has been approved. This will save you sleepless nights worrying about how you’re going to meet a deadline while waiting for Accountants, Banks and the ATO to do their thing.
- Be honest in your application. Whilst it may be tempting to put down that you earn $,000’s more than you want to tell the ATO, understand that it is the figures that you tell the ATO which will determine whether you get the loan or not.
- Give your Accountant permission to talk to your banker. Due to the Privacy Laws, we are not able to give out your information to Third Parties unless you give us permission to do so. On our website we have a Third Party Authority document which our clients can download, complete and send through to us. The document gives us permission to deal with Third Parties you authorise. It identifies who can talk to us, about what and for which set time period. This means that should our clients decide to change banks, for example, the old bankers lose access to their information.
If you follow these simple rules the next time you are thinking of going for a loan, the process should flow smoothly and you’ll have your funds when you need them!