Getting a loan pre-covid was already a matter of skill and knowledge in trying to match your circumstances with a lender that had a flavour of lending to ‘someone like you’.
There have been many changes by the Lenders to their policies because of Covid. The main impacts have been on self-employed people with Jobkeeper and also related to those of us who have accessed Super early.
With Covid, the lenders have a whole new range of policy requirements that have made this selection process more tricky, I would say this has increased the importance of having a broker to sort your way through the lenders to get you successful finance.
Let’s look at the three main points that may impact your home loan application:
1. Many people have pulled out Super early and there were a few requirements to do that can be problematic if you want to get a loan.
Mainly, it meant you had some form of hardship and thus wanted to pull out your Super to relieve that. It is easy to see why a lender may not be happy if you turn around and use those funds for a deposit as they were meant to help with hardship… It doesn’t mean you can’t get a loan but the circumstances need to make sense etc…
For example, some people pulled it out, then put it back in. There was much confusion about what to do and how it impacted you. We suggest chatting to your accountant for either scheme. However, this can also affect your loan application.
2. Self-employed or businesses getting Jobkeeper payments had to have a significant decrease in their income.
Jobkeeper is a key item that will impact how the lender looks at your business’s income. They are also comparing your BAS for this year to the same time last year and making calculations that impact the income they will use. When relying on financials from 18/19 the lenders understandably need confirmation as to how things are travelling now.
This has been the biggest impact because what was happening in your business a year ago may be completely different now. This does not mean you can not get a loan if you can show the capacity. It just means you will need a lot more paperwork and also the amount you can borrow may be reduced.
As these are times of distress for many businesses, it’s not a surprise how it has affected those who work their 9 to 5 jobs.
For now, even though the Jobkeeper has been extended, many people are still unemployed or on reduced hours as the restrictions still impact businesses. And it’s only natural that a lender will assume some tenants may be unable to pay their full rent. If you’re someone who rents houses to people, this could be a risky factor for you if you’re seeking an investment loan.
This is because, as there is uncertainty in renters paying their due amounts, lenders will be hesitant in nodding their approval to your application if you are overly reliant on these rents as a source of income. Many have added buffers to reduce the amount of rental income they will acknowledge.
3. It’s being said that several banks no longer have any intention to provide lending to applicants in high-risk industries such as hospitality and airlines, and tourism.
So, if you have a loan that had been approved pre-covid, the lenders will do all that they can to ensure that you still have a stable position in regards to your income sources. What’s the worst case scenario if you’ve applied for a loan subsequently on a later date? Well, your loan may not be funded and you’ll have a whole new situation in your hands.
Overall, 2020 has already been a tough year for many of us. Not only is the economy in great instability, but also the health of millions of people around the world are in the front of our minds. That being said, there have been many changes around and within ourselves that can bring surprising benefits. We still have the last quarter of the year and who knows, things are changing so rapidly. With an optimistic view, the last few months of the year could turn for the best. Sometimes the best gifts are just trickier to locate.
“It’s your reaction to adversity, not adversity itself that determines how your life’s story will develop.”
― Dieter F. Uchtdor
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