Whether you’re looking for a home loan or refinancing, you likely already know that lending policies have changed in the face of the coronavirus pandemic. More people are being declined based on their industry, especially if they rely on casual income (one-time events).
Those who count on anything from overtime to bonuses to round out their earnings may find it more difficult to secure a loan in their favor. Even rental income is being evaluated very differently than before. But it’s not all bad news in the wake of COVID-19. We’ll look at how lending is shaping up and what you can expect.
Just because banks are more hesitant to lend doesn’t mean they’ve secured all the power. If housing rates fall, as they are almost certainly going to do, this will swing the pendulum back in favor of the borrowers. And even if your lender is exercising more caution, there are plenty of well-funded groups that are still looking to work with the right candidates.
And considering the infrastructure of Australia (not to mention the global force of its economy), the country will continue to be a magnet for long-term investments in the future. The capitalisation rates for prime property are only expected to go up. Anything that can provide secure income will be increasingly seen as more valuable to investors, which can in turn, boost confidence in the rest of the market. As distant as the day may feel, things will eventually go back to normal and potentially sooner than we imagine.
If you’re looking for options on how to structure your loan during this time, it’s more important than ever to work out the amortization formulas before you settle on the rate and timeframe of the home loan. The standard advice still remains (e.g., large down payments, shorter mortgage terms, etc.), but you need to consider how the economy will affect your ability to pay (or overpay) each month.
If you need a more personalised approach to lending, Shore Financial can help create a loan structure that’s rooted in sound financial planning without discounting the state of your current situation.
If you’re in a heavily affected industry, such as retail or hospitality, then the banks will need to verify that your income is unaffected by the COVID-19 economic impacts. If you’re applying with casual income, you’re more likely to be turned down. Some lenders have also reduced their maximum loan-to-value ratio (LVR) in some situations. In general, both the people and the property market are seen as higher risk these days, which will mean tighter criteria and less forgiving lending practices.
Banks are also looking for more proof these days. All self-employed people will need to provide their business activity statement from the first quarter, and all bank statements must be within the last two weeks to be considered for approval. Banks are essentially going to prioritise protecting their books right now, which essentially means that everyone from independent contractors in tourism to full-time employees in lucrative economic sectors will feel the squeeze.
Those trying to use rental incomes to augment their application may not see a positive response from the bank either. This is because many are unable to pay rent right now, which diminishes its overall security. Finally, banks have been spot-checking applicants that have already been approved for a loan but whose loan has not yet been settled.
Lenders may call an employer to see if they’ve laid off an applicant or otherwise furloughed them. One online lender has already emailed pre-approved customers to essentially cancel their applications while still offering new applicants the chance to join a waitlist.
Australia’s housing market has been resilient with the impact of COVID-19. Home values have increased in April despite predictions of the market going down. According to CoreLogic, home prices have pushed up to 0.3 per cent across the country.
Now that auction clearance rates around Australia have dropped to record lows, there’s an opportunity for buyers to reassess the way forward. Sydney’s clearance rates have hit 37 per cent with 547 properties withdrawn from auction.
With the changing market, sellers and property firms are moving to other forms of sale. It’s important for buyers to be aware of other virtual tools and remote property appraisals used by property firms to access the properties they are keen to invest in. The property market is still very much open for business and exploring more innovative ways to close the sale. But if you need help navigating what this means for you as a buyer, talking to a financial expert from Shore Financial can bring clarity to your property investment decisions.
Lenders are also not closing the pursestrings entirely here. Low-interest rate, refinancing deals are excellent right now. If your occupation and income are stable and likely to remain so, this is a great time to lock in rates that would have been a pipe dream just a few months ago. As you build up equity with your lower rate, it creates a cushion for unforeseen changes. And if you do have a pre-existing loan approval, you may want to contact your broker and have a conversation if they haven’t reached out yet. If the lenders see new risk, they have every right to back out of the deal. You can also leave your application in limbo for a little longer than planned just to give some time for the dust to settle.
If your income is not secure right now, it may be a good time to delay working with a lender. However, if you can, buying or refinancing might be your best option right now. If you have questions about how to refinance, Shore Financial can help you figure out the best
The importance of strategy right now is absolutely critical. There are no guarantees when it comes to your property, but this is a tremendous opportunity to implement better financial planning and really take your portfolio to new heights. By staying up-to-date with the lending changes and talking to someone who knows the markets backward and forwards, you can set yourself up for true success. Call Shore Financial to learn more about how we can help plot your next move.