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Home Loan Experts revealed the decline in pre-approval to settlement rates in the last few years.
Over the last four years, the average conversion rate has been 53.88 per cent.
Broken down, there was a steep decline. For each financial year, the conversion rate was:
- 2021–22: 60.45 per cent
- 2022–23: 55.78 per cent
- 2023–24: 58.55 per cent
- 2024–25: 40.73 per cent
- 2024–25 (projection): 40.73 per cent
Dropping nearly 20 per cent in just four years, there are compounding issues impacting the conversion of pre-approvals.
The intense increase in property prices was recognised as a major reason behind the figures.
Home Loan Experts said that buyers are often pre-approved for a certain budget, only for property prices to increase in the weeks following.
Tight time frames were also seen as a major hurdle for borrowers, with many pre-approvals expiring within 90 days.
Shifting lending criteria were another key roadblock. Home Loan Experts said lenders can often adjust policy during the approval process, hindering borrowing power.
Further, the research said borrowers can simply grow tired of constant pushbacks. This can disillusion them and result in them pulling out of the process entirely.
Market uncertainty isn’t helping either, said Home Loan Experts’ senior mortgage broker Jonathan Preston.
This can affect decision making, as he said, “fear is a much stronger emotion than greed.”
“I did a pre-approval myself and didn’t buy a property and that was the first time I’ve ever done that. Personally, I got cold feet before pulling the trigger. I think the market was still too uncertain (which was the perfect time to buy in hindsight). I suspect maybe some others were in the same boat regarding uncertainty around prices/rates,” said Preston.
“Back in FY21, it was ‘buy whatever is available’, because it was booming hard. Since then, the stock levels have been more balanced and there has been less FOMO – so lower conversion rates.
“Also, as rates were rising, some people said they weren’t going to proceed on their pre-approval because they didn’t know the future repayments anymore. Now, there might be too much stock, so there is not that much FOMO. Everyone expects rates to go down, so they’re waiting.”
Brokers are running into their own challenges with converting borrowers. Home Loan Experts’ mortgage broker Sid Bajracharya said this is especially pronounced with owner-occupiers.
“Primarily, it’s people seeking owner-occupier properties that are hard to convert, for me. These buyers have specific requirements for their homes, which can be difficult to match if stock is limited,” said Bajracharya.
“At the same time, most of the properties they want are out of their budget or borrowing power, so they wait for the interest rate to fall; however, it’s hard for them to understand that this also means the property price will rise. And if they’re emotionally tied to a property, they sometimes will wait too long and miss out entirely.”
[Related: 5 ways that delays kill high-value deals]
