There’s a few reasons why many people aren’t exactly overjoyed about the idea of restrictions easing.
For one, we’ve spent the last few months navigating the ‘new normal’ of living; dry hands, breathing through masks, managing Zoom fatigue, and starting our sentences with ‘can you hear me?’… so returning to set routines and ‘life as we knew it’ is bound to present its own challenges, too.
For another, there’s the fear of social distancing and hygiene going out the window, with the risk of people dismissing the danger that still exists.
But perhaps the less apparent concern in the mix, or at least one keeping many homeowners awake at night, is the uncertainty about mortgages and lending as we slowly transition into a post-virus world.
While government relief measures have provided a silver lining for many Australians struggling to make ends meet in recent months, numerous have been left wondering about the long-term implications on their credit history and future borrowing capacity. And with 1 in 14 mortgages across Australia deferred as a result of COVID-19 (18 May 2020), it’s no surprise that lenders are now revising their criteria with a focus on borrowers and industries at high risk, namely travel or hospitality.
However the new criteria is by no means defined, nor new rules for borrowing agreed upon.
Craig Corbett, Finance Specialist at MoneyQuest, says that while lenders are still split on the conditions surrounding stimulus packages and borrowing, the criteria tends to be circumstantial.
“Lenders are allowing borrowers to defer payments for up to 6 months, with a review at 3 months, and missed [mortgage] payments are not treated as late and will not be noted in your credit file,” he said.
“So, future borrowings won’t be too badly affected, as long as you meet the terms of the agreement and your repayments return to normal.
“If you don’t, you will be listed with a credit default, and this will affect your ability to borrow at low rates for 5 years. But always talk to your lender before a payment is missed as they’re much more likely to work with you.
“As with any bill, paying on time is best, unless you make an arrangement with the provider prior to it being overdue.”
And while conditions regarding buying property on JobKeeper payments are also circumstantial, there are a small number of lenders who will recognise JobKeeper payments as a secondary source of income, and may be willing to accept several conditions around it.
“One school of thought is that JobKeeper payments will have a negative impact on people’s ability to borrow once people return to work. In any case, the difficulty isn’t around the person’s current income, but stems from the perception that the business was or is struggling,” says Craig.
“However other lenders are saying that as long as people are back at work, at their normal income, they will overlook it.”
As for homeseekers on reduced income, the minimum requirements for borrowing have also changed. Lenders have reduced the amount of overtime or allowances they will accept when deciding on an ability to repay the loan.
According to Craig, “previously we may have used 80% of allowances, but in instances of reduced income we might only be able to use 50-60%, or even nil… some lenders are demanding larger deposits to qualify.”
Craig says lenders that take more risk typically have increased interest rates and fees, due to how they fund their loans and to provide a safety net for approving applications.
As with any loan application, the key is to prove to your lender that your employment is secure – but perhaps more than ever, to also speak to someone early in the process.
For most of the population whose income and job stability has been unchanged by COVID-19, it’s important to know that the criteria for taking out a loan to buy remains as it was previously, with only minor changes.
It’s in the best interests of banks to lend money, and most are inclined to help you find a solution that fits your circumstances, and will meet your borrowing needs.
After comprehensive advice on refinancing or securing a loan during Covid-19?
For tailored and up-to-date information, contact Craig Corbett at Moneyquest or Prudential Real Estate Campbelltown on the details below.
Prudential Real Estate Campbelltown
(02) 4628 0033 | firstname.lastname@example.org
Craig Corbett, MoneyQuest Finance Specialist
0418 204 120 | email@example.com