How Are Lenders Changing Their Policies in Response to COVID?
Despite the fact mortgage rates in Australia have fallen to an all-time low, lenders are not making it easy for borrowers to access credit. That’s despite the fact that home values have actually risen +0.3% nationally in April according to CoreLogic.
While the economic shutdown associated with COVID-19 has put the spotlight on a number of industries and sectors that have been particularly hard hit, there are still a host of professionals that can get finance – albeit with some minor tightening of requirements.
Professsionals and LVRs
For professionals in many fields, they have likely not been impacted financially in any meaningful way. However, LVRs have been getting tighter across the board.
We’ve seen medical professionals, who have previously been able to borrow at LVRs as high as 95% with no lenders mortgage insurance (LMI) getting that pulled back into 85%.
While other professions such as accountants or engineers, particularly those working overseas have also seen a slight decrease in the LVRs lenders will accept. But again it hasn’t been a large change at this stage with most moving from 90% to 85% with no LMI for those specialised industries. The big banks are pulling back on any loans that are above a 90% LVR with no LMI.
So for the bulk of the clients, we work with, the impacts have been minimal. However, other industries have not been so fortunate and there have certainly been some tightening of requirements.
Tightening Conditions
For a range of other industries that might be more impacted by the economic shutdown supporting documents need to be right up to date. Previously, you might have only needed to have bank statements or payslips from the previous six weeks, but that’s really tightened up as we might have expected. Those documents need to be up to date, in line with the date of application.
The same thing is true with self-employed applicants and business owners. In the past, you might have only needed details of your last two year’s tax returns, whereas now the lender might require more evidence that your income hasn’t been impacted – so that might be your latest BAS Statement.
Lenders are also asking more COVID related questions through the application process. Requiring borrowers to prove they haven’t been impacted and if they have, ensuring it won’t adversely impact their ability to service a loan.
Some lenders are asking very specific questions such as:
- Has the borrowers income position changes since the time of application?
- Does the borrower expect any reduction of income to occur in the future?
- How will you make payments throughout the crisis?
Another area that has been impacted is also the ability for property owners to access a ‘cash out’ style refinance. With some lenders effectively closing the door completely on this type of loan.
Employment Under the Microscope
Employment types are also being impacted right across the board. Things like overtime allowances and bonuses are now being closely scrutinised and in some instances are not being counted towards your total income.
Casual employees that are working in industries like hospitality who might still be receiving an income are starting to see that income does not get accepted at all. Or at the very least, you need to expect that the lender will request additional information such as payslips, even after loan documents have been signed. Just so they can ensure you are still earning income and will be able to service any debt in the short term.
With lending becoming harder and changes being so fluid, it’s important to get on the front foot and take steps to start the process, even for something like a refinance. And with rates as low as almost 2 per cent there is a good reason to be considering refinancing.
It’s also wise to try and free up some spare cash if you think you might need it in the future. Homeowners with equity can look to refinance and pull some money out of their property and leave it sitting in an offset account and effectively not costing them anything at all.
They then have the ability to use this money if they are impacted in the future or to even purchase an investment property, if the opportunity presents itself in the months ahead.
