Coronavirus prompts sudden lending changes for hopeful home loan borrowers

If you were counting on a pre-approval to secure your new property, looking to refinance, or shopping for a home loan, things have changed in the wake of the coronavirus outbreak.

Lenders are revising their lending criteria, with a focus on borrowers considered to be in high-risk industries.

Casual income, in particular, is seen as extremely high risk and only a few lenders are accepting it at all.

Banks are far less likely to rely on unstable income types, for example casual, contract, temporary, seasonal, commission, overtime or bonuses. Usually, they’ll use the base income only and may use a small per cent of any additional income.

Some lenders have also dropped the maximum loan-to-value ratio (LVR) they will consider.

They’re being conservative because everyone is a higher risk than they were just a month ago. Some have put in place minimum credit scores so that they’re just approving the lowest risk people.

More Details Required

For all self-employed applicants, regardless of industry, the application must include the March quarter business activity statement (BAS) and bank statements no older than 14 days at the time of approval.

Bank policies will continue to change as banks shift from helping existing customers to protecting their loan books with new customers.

No job is safe in this environment, casual employees will need detailed supporting evidence, contractors could be avoided altogether and [the evaluation of full-timers] will be industry-specific with every job and employer looked at for any signs of distress.

Lenders might also pull out of postcodes they considered high-risk areas, especially if those areas had an oversupply of housing.

For investors, rental income may be discounted if a property lacks a paying tenant.

If you’ve got a loan that’s been approved, they will be making spot-checks to make sure applicants haven’t lost their job, at worst the loan will not be funded and you’ll have a very problematic case on your hands, but we hope that commonsense will prevail and an arrangement will be made between the lender and borrower.

What should buyers do?

Given the current low-interest rate environment, it may be a good time for refinancing to lock in a lower rate providing your occupation and income remains stable.

Rates are at all-time lows and you’re getting better deals than you ever have, you can build buffers through equity by extending your loan. You might not be able to refinance later if you lose your job, so it’s one of the best things you can do to lower your risk right now.

If you have an existing pre-approval you should be aware that it may no longer be valid.

It’s best to have a cooling-off period or to discuss the risks with your mortgage broker before you go to auction.

If your income is in any way uncertain you should consider putting your property buying aspirations on hold, or at the very least talk to your employer before investing.

On the other hand, if your income is assured then the next few months are likely to be one of the best times to buy.