The economic impact of Covid19, and its resulting uncertainty around employment, has forced many people to reassess their current lending arrangements to ensure they are in the best position to ride out the proverbial storm.
While new housing finance has experienced a significant hit in 2020, refinancing has reached record highs increasing 25% in May. To put this in perspective, refinancing has historically made up about 26% of total lending but jumped to 43% in June. With so many choosing to refinance their loans what have lenders changed when assessing your application?
1. Certain industries and types of work are being treated with caution
Obviously Covid19 has had a disproportionate impact across certain industries with jobs in tourism, hospitality, entertainment, retail, personal transport (Ubers and taxis), personal services (beauty) and sporting professionals most affected. If you work in any of these industries, you can expect to be ask for additional information and be prepared for the lender to contact your employer to find out your true status and whether that’s likely to change any time soon.
If you are currently on JobKeeper payments or enforced annual leave, some lenders may take this into account and even use it as a reason to deny your application. Select lenders have excluded lending to these industries completely but on the flip side some are offering incentives for certain in demand industries such as healthcare.
2. Tighter assessment of income
Lenders are concerned that applicants may see a dip in their income compared to what they had earned pre-Covid-19. When verifying income, you may be asked for the very latest payslips and even evidence that these payments had been deposited to your bank account. Lenders are also especially tough on borrowers with less stable income types such as commission, contract, probation, overtime, bonus or casual income.
If you are self-employed, you may be required to produce current BAS declarations in addition to your latest tax returns to show recent revenue has not been significantly affected.
3. Change to how rental income is assessed
Prior to Covid-19 most lenders were generally happy to count around 80% of the rent you receive from an investment property towards your income. However, with COVID-19 reducing the ability of some tenants to meet their rental obligations, banks have subsequently reduced the amount of rental income they will count, in some cases down to 50%.
Further to this reduction, given the current restrictions in place, rental income generated from short-term accommodation or Airbnb are not being counted at all in certain circumstances.
4. Lower loan to valuation ratios for some borrowers.
In the past borrowers have been able to lend up to 95% of the value of their property with applications over 80% requiring the borrower to also apply for Lenders Mortgage Insurance (LMI). During Covid-19 select lenders have now restricted certain borrowers, for example the self-employed, to a maximum lend of 80% and industries that have felt the full impact of Covid-19 limited to 70% in some cases.
5. Proving your identity and signing documents have moved online
Previously your lender, or mortgage broker, was required to identify you in person by sighting your current identification documents. Most lenders have now changed their policies to allow this identification to take place electronically via platforms such as Zoom or Skype.
Likewise, prior to Covid-19, most lenders required you to physically sign and return your application and loan documents. Now almost all lenders have moved towards various electronic signing options for all documents including mortgages in New South Wales, Victoria and South Australia. Documents that still cannot be electronically signed inlcude guarantees as well as mortgage documents in other states.
6. Delayed processing times
With the influx of refinancing applications, plus increased scrutiny of each application on top of customers applying to have their repayments paused, some lenders have been overwhelmed by the additional workload and average turnaround times have significantly increased. Some lenders, particularly those with offshore processing, are taking more than 4-6 weeks, whilst others have managed to keep timeframes as low as 2-3 days.
It must be stressed that each lender has taken a slightly different approach to how they have adjusted to Covid-19 and the summaries in this article do not apply evenly. Seeking assistance from a mortgage broker has never been more valuable to help navigate the nuances of finding the best available lending solution.