How has lending changed due to Covid-19?

It's likely we haven't (yet) seen the toughest of lending conditions.   But already there are significant changes to lending.  Here is a summary of the key topics;

(1) Income stability is important.   Lenders are looking for established income, strong industries and sectors.   

(2) Some sectors of employment (like hospitality, tourism, others) are turned away by many banks.   Some lenders are verifying income prior to loan approval, AND again before settlement.   This can be tricky !!

(3) Valuers are conservative.  Most purchase prices with an on-market transaction seem to be holding up.  But valuations for off the plan purchases and refinances are coming back VERY conservative.

(4) Self employed income rules are changing.    Lending applications previously have been based on financial years, so (even now in May 2020) some banks still accepted FY18/18 figures - so that's way back to July 2018.   May is about the time where they start saying "we now need the tax returns for the last year, so right now the FY18/19 year.  That's because self employed tax returns are not required by the ATO until about February.   But now, banks are often looking for current BAS or business statements showing they support the FY19 returns, AND have in many cases reduced LVR's to 80% ; that is, a self employed person might only be able to borrow 80% of a home value, and the salaried person might borrow to 90% or higher on the same home.

(5) Job Keeper income is not accepted by many banks.   So an employee who is on say $1,000 a week, but now receiving $750 of that as JobKeeper and $250 from their employer, may not be eligible to borrow.   The bank is basically saying "we don't have confidence that your business can sustain your job post Covid, so we won't lend to you right now.   That's big, because I saw a statistic last night that there is about 12% of the workforce on Job Seeker, and another 12% on Job Keeper right now {ABC "The Business" 21 May}

(6) Banks are struggling.   There is huge levels of general enquiry like loan pauses (personal, business, home), AND many of the banks staff working from home (sometimes with little or no access to systems), AND some overseas processing centres are closed or on reduce capacity. The result is very long wait lines on phone, and very slow action time.  The system is being stretched.

(7) Banks offer better interest rates to new customers.  The Treasurer has called on banks to stop charging existing clients higher interest rates than new clients. This is after an ACCC report this month found a home loan which is 4 years old is likely to be 0.4% higher than a new loan. {Source: The Adviser 27 Apr 20}.    [Martin comment - let's reprice your current bank, or if they don't shape up let's look at a new loan]

(8)  BUT.  For the borrower who isn't affected by all that, there is great opportunities.   Many of our clients feel confident they can get a great buy, and are happy that we help them through this maze and find the a quick lender with suitable lending policies and a great product - they are the people that are out there looking for a great buy.

Stay safe, call us any time for a chat.