The process of applying for a home loan can be daunting at the best of times. For the estimated 6 million Australians who are currently receiving JobKeeper payments, the financial uncertainty may jeopardise their chances to enter the property market. Property & Commercial Partner, Barry van Heerden, looks at what house hunters may need to consider amidst COVID-19.
On 21 July, the Government announced the extension of the JobKeeper Payment Scheme, which will continue to be offered to eligible recipients up until 28 March 2021.
From 28 September 2020, businesses and not-for-profits claiming JobKeeper payments will be required to reassess their eligibility with reference to their turnover in the June to September quarter. Businesses will need to demonstrate that they have met the relevant continuing decline in turnover.
A further reassessment will need to be made in January 2021 for the period from 4 January to 28 March 2021.
The payment rate is also being reduced and will be paid at two different rates. From 28 September 2020 to 3 January 2021 the payment rate will be $1,200 per fortnight for those eligible and working for 20 hours or more a week on average. For those working less than 20 hours a week on average will receive $750 per fortnight.
From 4 January to 28 March 2021, the payment rate will be further reduced to $1,000 per fortnight for those working 20 hours per week or more. Those working less than 20 hours a week will receive a reduced payment of $650 per fortnight.
Changes to lending policies
Banks and non-bank lenders have tightened their lending policies around unstable income, with major banks indicating they will not consider an application for a loan if the application is only based on income received from JobKeeper payments. Other lenders have indicated they will treat each application on a case by case basis and may consider income received under the JobKeeper program.
We asked Troy McLachlan, Director of 8 Collective Finance, about what lenders appetite has been during COVID-19.
“From our experience, most lenders have continued to operate reasonably well during this unprecedented time. The main issue we have experienced has been more around lender’s service being affected by changes to their working environments, both on and offshore,” he said.
“Applications are continuing to be assessed based on the individual merits of the applicants. In some instances, there may be some extra questions asked and/or a deeper review of the information provided, with regards to things such as specific industry types. However, if the deal “makes sense” and the borrower can service the loan now and into the future with no foreseeable decline in income, lenders are providing approvals as they were prior to COVID19.”
“Some lenders have released policies around assessing applications for applicants who are currently on JobKeeper. However, one main change is that most lenders are assessing loans by taking the applicant’s income prior to JobKeeper, and the income whilst on JobKeeper, and using the lower of the two figures. Additional declarations may be required by the applicants, however keeping in mind this is no different to the current Responsible Lending requirements in place to ensure that the loan is “not unsuitable” and that the applicants will not have any financial difficulties in meeting the repayments of the new loan”, advised Troy.
Troy explained that some additional work by the Mortgage Broker upfront, with regards to reasonable enquiries and detailed file notes, can help ensure loans are progressing without delays or issues.
Questions borrowers may be asked
The below questions are what may be asked by a lender to determine a borrower’s financial situation when considering the adverse economic effect of coronavirus:
- Tell me about your job and the impact of COVID-19?
- Has your employer given you any indication that COVID-19 may result in reduced hours or income?
- Have you reduced your rental income amount on any of investment properties (if applicable)?
- How has COVID-19 impacted your business?
- Discuss any future changes you are aware of that may impact your financial situation
- Do you believe that you will be able to return to normal employment conditions after the COVID-19 pandemic?
For JobKeeper to be an acceptable form of income, the following criteria must also be met:
- A current payslip with evidence of JobKeeper payment and a prior payslip showing previous income
- A letter from the borrower’s employer confirming their work status, and any change in income
- Evidence of salary being received into a bank account
- Evidence of any security that can be provided to better the chances of a successful application. Security may include mortgages on other properties or guarantors from family members.
Pre-approved pre-COVID – What now?
A lender is under no legal obligation to fund a home loan, so even on the day of settlement, the lender can withdraw the approval if they feel it is not in their customer’s best interest to take out the loan. Brokers and lenders will review pre-approved mortgages where borrowers’ financial situations have changed due to job loss or reduced hours.
COVID-19 and Contract of Sale Clauses
For those in a position to buy, it is recommended to include a COVID-19 clause so that you have the ability to rescind the contract in the event of unforeseen circumstances. This information applies to NSW properties only.
The contract must be amended before the buyer and seller sign the dotted line. Attwood Marshall Lawyers can provide your clients with expert legal advice and draft special conditions in order to mitigate any issues that may arise as a result of the current pandemic.
Top tip for house hunters wanting to buy now
The best advice would be to talk to an experienced mortgage broker as early as possible to determine the best lender to approach and compare suitability of home loan products. Applicants should always ensure that any repayments for existing loans are paid on time, that they have a handle and understanding on their current budget, or living expenses, and can stick to a regular savings plan if they are looking to buy a property or obtain any finance.
How can Attwood Marshall Lawyers help?
The property market on the Gold Coast is currently holding its own and there are opportunities available for buyers to purchase property at reasonable prices.
Should buyers require any assistance with loan documents after their loan has been approved, Attwood Marshall Lawyers can peruse all documents, including any guarantor documents, and provide expert legal advice to ensure a smooth transaction for all parties.