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How has coronavirus (COVID-19) effected home loans

  • Yellow Loans
  • Jan 14, 2022
  • 6 min read

Updated: Jan 30, 2022



The home loan market and the way that lenders look at applications has been significantly effected by the COVID-19 pandemic.


Due to the large numbers of businesses and workers being effected by lock downs, isolation rules and the great economic impact that COVID-19 has had on the economy, lenders are adopting strict lending policies, in particular on the types of income and long term employment prospects


If you can prove that your income and ability to maintain your regular ongoing financial obligations is not effected, then provided you meet all the other lending criteria, you should be able to get approved for a home loan more easily. However, if you have become unemployed recently, have had financial hardship or not been able to meet your regular repayments then lenders will look at your application as a higher risk.


Borrowers also need to keep in mind, not paying your personal regular repayments is recorded on your credit file and your credit score will reflect any late or unpaid repayments.


Home loan lending policy changes due to coronavirus (COVID-19)


When applying for a home loan, lenders most important obligation is to ensure that the home loan is not unsuitable and meets your objectives and requirements. If the lender feels that you may not be able to afford the loan repayments without experiencing financial hardship.


Therefore if you want to apply for a home loan, a key factor in your home loan approval process is being able to prove that you have stable employment and you can afford your repayments.


Lenders will be more at ease with borrowers who are employed, who meet their financial commitments and have a proof of savings.


Home loan lenders will be tougher on borrowers who rely on unstable forms of income such as commissions, overtime, bonuses and casual employment.


Borrowers who have contract employment and casual workers are in the high risk category of losing employment, so this may effect their ability to get approved for a home loan or to refinance their home loan.


It is important to note that lenders have adopted the same loan assessment for other types of finance such as:


- Personal car loans such as secured car loans, unsecured car loans and novated leases

- Asset finance

- Personal loans and

- Credit cards


Which borrowers aren’t affected by changes in lender income assessment?


Applicants who are employed in sectors that are considered essential services such as health professionals, police and emergency services, corrections and some transport workers are not effected by these acceptable income assessment changes.


Government workers and other applicants in growing industries who’s income hasn’t been affected by coronavirus are also not effected.

What loans are effected by Coronavirus (COVID-19)


There are a number of home loan types that’s are assessed for income as a higher risk category.


High LVR Home Loans


The property market is expected to stabilise which will result in property prices falling. Home loan providers are therefore uneasy about lending a high percentage of the property value due to the risk associated with acceptable security.


Home loans that are over 80% loan to value ratio (LVR) are harder to be approved for. Loans above this LVR will require Lenders Mortgage Insurance and applicants with stable income and a good reliable source of income that can service the loan will have a better chance of getting approved.


There are options to reducing your LVR such as using equity in another property or getting a guarantor to strengthen your home loan application.


Construction Loans


Construction loans are complex in nature with loans for the land, then a loan for building your new home. Lenders have a concern about the level of security and recovering their money in the event of default against a half built house.


Home loan lenders that offer construction loans, generally look for a lower LVR to reduce their risk and consider the assessment of the borrowers income and future employment as a key factor in construction loan approvals.


Rental Income


Lenders have began to tighten up their assessment policy for borrowers that rely on rental income from an investment property as a source of income due to the stress that coronavirus (Covid-19) has put on the rental market.


Your rental income should be accompanied by an equity security against the investment property and landlords insurance for the best chance of being approved for a home loan.


Large home loans


Home loans for large or expensive home purchases are becoming exceptionally hard to be approved. The reason for this is that the smallest increase in home loan interest rates can make a substantial increase in monthly repayments and ultimately causing the borrower financial stress and hardship.


Applicants with high monthly expenses


Applicants with regular financial commitments that consume a considerable portion of their income are a higher risk for home loan lenders. Due to the risk of lockdowns and unemployment, lenders are hesitant to approve home loans for borrowers that are over exposed.


If borrowers have multiple financial commitments such as car loans and credit cards it may be worth considering a home loan to consolidate your debts better known as a debt consolidation home loan.


What will lenders ask me about how Covid-19 has effected me?


Due to the coronavirus pandemic, you can expect lenders to dig a little deeper when looking into your financial situation.


You can expect lenders to ask some key questions to establish whether you meet the current criteria such as:

  • Can you tell me about your job and the impacts of COVID-19?

  • Has your employer given you any indication that COVID-19 may result in reduced hours or income?

  • Have you reduced the rental income amount on any of your investment properties?

  • How has COVID-19 measures impacted your business?

  • Can you tell me about any future changes that you are aware of and how they may potentially impact your financial situation?

  • After the COVID-19 pandemic, do you believe that you’ll be able to return to your normal employment conditions?

How can I get approved for a loan?


Income is a key focus of lenders at the moment so you should provide as much information as possible to improve your prospects of a fast and effective approval.


Some documents you should submit include:


- Submit PAYG income summaries from the last few years and a letter from your employer along with your payslips to confirm your income is stable and consistent over the last several years.


- If you are self employed, you may need more documents than you would with a low doc loan. For self employed home loans you will need at least two years tax returns and your latest BAS Statements.


- If you are relying on rental income to support your ability to repay the loan you may need a longer rental history than the standard 6 months, up to 3 years.


Banks will also look into other things in relation to being able to afford your home such as:


  • You have a steady employment history and job security.

  • That you have a good credit score.

  • That you have made your regular payments and expenses and have proof of savings

  • How long does it take to get approved for home loan?

  • Some lenders can provide you with feedback within a number of days (2-3) with a conditional approval or a request for further information. Some of the major banks re taking up to 20 days, due to the level of applicants.

Below you will find some useful links that will provide you with all the information you need to make the best loan decision. In the meantime if you want some free professional assistance, you can contact a loan specialist on 1300 199 964

or

SYDNEY | Level 21, 133 Castlereagh Street Sydney NSW 2000 |

MELBOURNE | Level 11, 456 Lonsdale Street Melbourne VIC 3000 |

BRISBANE | Level 10, 95 North Quay Brisbane QLD 4000 |




 
 
 

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