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Has COVID-19 affected home loans?

By Therese Bolin

We spoke to Damien Page from Loan Market about how the fallout from COVID has affected lending.

What are the key challenges that buyers are facing at the moment when it comes to obtaining finance?

Covid-19 has made it difficult to gain finance through many lenders, the big four banks have all tightened their lending criteria. The good news is that some are still open for business and have tailored policies for effected industries and incomes. Application processing times have increased and buyers need to expect that there may be a few more hurdles to step through.

What might buyers be unaware of that can influence the ability to get finance?

The three things that seem to surprise buyers are:

  1. Banks assess credit cards based on the limit and not on the amount owing. It is also a common myth that you need to have credit cards to get a home loan; this was the case 20 years ago but is no longer applicable. Credit cards are just another form of revenue for a bank these days and can work against you when applying for a home loan.
  2. Banks check your last 3-6 months of savings and transactional account conduct to ensure you are saving and not spending on things such as gambling. They also look at much you spend per month on discretionary items. Many buyers underestimate how much they spend per month, review how much income your household has per month, then minus how much you put into savings per month = your expenses.
  3. Zip and Afterpay; these are becoming common and can be considered high risk by banks, showing that clients are living outside of their means and going into short term debt to purchase discretionary items. It calls character and spending habits into question.
  4. Certain industries have been affected by COVID-19 more than others, those who self-employed, working in impacted industries or those who rely on commissions or overtime may find their ability to obtain finance has been affected.

For upsizers, are there any key challenges to be aware of, such as bridging finance? 

Banks have significantly different policies regarding bridging finance. Some lenders require the clients to be able to afford both home loans at once, while other lenders capitalise the interest and base the debt on what is left after your existing property is sold. It is always a good idea to speak to a broker who can look at your situation and provide options as it can be complex.

How much time should buyers allow for finance approval or pre-approval if they are looking to buy a home in the next 3 – 6 months?

Generally, pre-approvals take 1-2 weeks to be granted depending on the lender but I recommend leaving as much time as possible to allow for potential processing delays. If you start looking at homes to purchase, you should have a pre-approval in place before attending open homes as they last for up to six months.

How would you recommend buyers set their budget for their next home purchase? What’s the best way to discover how much they can spend on a home?

The best way to find out how much you can spend on a home is by talking to a mortgage broker. Banks not only look at how much additional income you have after expenses, but they also factor in contingencies in the rates and buffers on debts. During COVID-19, some lenders have stopped using income outside of base income, but others have not, a broker can step you through this.

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