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What do Banks look at........the 5 C's

Often referred to as the cannons of lending: character, capacity (to repay), collateral (security), conditions and capital.
 
Character
Banks will only lend to people that they consider will repay the debt. They have to make an assessment of character; in other words integrity. Some of the things which will influence the character assessment are:
 
  • Credit checks (whether clean)
  • Assets/savings relative to age
  • Occupation and stability
  • Residency status and stability
  • Debt levels and repayment history
  • Check of Bank statements-spending patterns
 
Capacity to repay
This is a test that the lenders apply to satisfy themselves that the borrower can repay the loan that is being applied for. In simple terms they take total monthly NET income and deduct living expenses along with credit commitments. Provided there is a reasonable surplus then they may be happy to  approve a loan.
 
Whilst finance might be approved the borrower needs to be  fully aware of the commitment that they are entering into.  It would not be unusual for loan repayments to exceed rent that a party might be paying.  Of course there is also rates, insurance and maintenance costs to factor in once you own a house.
 
Collateral
This refers to the mortgage (security over property) that the Bank will hold to secure the loan(s).  Ultimately the Bank can sell the property to repay the loan(s) in the event that repayment of the loans have not been made for some time.
 
Conditions
This refers to economic conditions. A good recent example of how this can impact is the global financial crisis. Early in that crisis Banks tightened up on credit due to market uncertainty. In other words finance was harder to obtain in some cases.
 
Capital
The amount of deposit or equity of the applicant/borrower. The more a borrower has of their own money in a property the less likely they are to walk away from the obligations.
 

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CONTACT US

Kris Pedersen Mortgages Limited
+64 9 486 4719
+64 9 486 4711 (FAX)
info@krispedersen.co.nz

Skype: Kris_Pedersen    
Takapuna Office
 
388 Lake Road
Takapuna
Auckland 0622
Newmarket Office
 
Level 6
135 Broadway
Newmarket
Auckland 1023
Postal Address
 
PO Box 33650
Takapuna
Auckland 0740