What counts as 'genuine savings' when applying for a loan?

Interest rate announcement – August 2017

Today the Reserve Bank of Australia met to review the official cash rate. After last cutting rates in August 2016, the RBA have again decided to leave rates on hold at 1.50% this month. Nonetheless, we have seen some lenders starting to increase their variable and fixed interest rates out of cycle and we expect others to follow suit.

What counts as ‘genuine savings’ when applying for a loan?

When you apply for a home or investment loan, particularly if the Loan to Value Ratio (LVR – the amount of money required to be borrowed as a percent of the total property value) is more than 80 per cent, it is likely that you will have to demonstrate to lenders that you have the capacity to save money. This usually means that you will have to be able to show that you have a consistent history of putting money aside. This is to show the lender that you have the ability to direct enough of your income towards making the required repayments on the loan that you are seeking.

Although it can differ from lender to lender, in most cases you will have to be able to prove that you have been making the claimed level of savings for a period of at least three months, but preferably for a year or more.

In assessing your level of savings, the lender will generally not consider the following sources of money as legitimate savings:

a cash gift
an inheritance
casino/other gambling winnings
proceeds of the sale of a non-investment asset
government grants and other finance offered as incentives

Can I still get a loan without genuine savings?

For those who don’t have any genuine savings but still want to obtain finance, there are a few options. These include:

Guarantor loans – Having a guarantor on your loan may mean that no deposit is required, with the equity or asset the guarantor stakes standing in for a deposit.
Other significant assets such as shares, managed funds and/or equity in residential property – Depending on your chosen lender, cash isn’t the only thing accepted as genuine savings. There are even situations where the sale of a vehicle can be considered as genuine savings if proved that it was owned for three months or more.
A strong rental record may see a lender allow you to forgo the genuine savings route – Some lenders will waive the requirements if a letter can be produced from a licensed real estate agent confirming that rent has been paid on time and in full for the preceding 12 months, as it highlights your ability to make repayments on time and on an ongoing basis.