Getting a home loan in the time of corona

With everyday life being put under lockdown thanks to the pandemic, and the spectre of recession hanging over our heads, the normally familiar path to property ownership has become more complex.

The effect of social distancing rules on workplaces and the economy have led to some banks putting new limits on mortgage lending. This has led to some Aussies with ambitions of property ownership having to rethink their plans to get a home loan this year.

What’s changed?

Social distancing rules have affected the mortgage and property industries much like the rest of Australia’s economy. Many bank offices are closed, or have switched over to working from home, and some call centres are under pressure. Real estate agents have begun swapping from packed property inspections and crowded auction rooms to virtual tours and online auctions via videoconference.

The pandemic has put many Australian jobs at risk, especially in higher-risk industries like airlines and tourism. While the government and the banks are providing support packages to offer financial relief to individuals and businesses, many Aussies are still losing jobs, seeing their hours cut, or otherwise doing it tough. According to the Australian Bureau of Statistics (ABS), around 3 per cent of people who had a job in early March no longer had one by early April, and in the first week of April, around 24 per cent of Australians aged 18 and over with a job were working less hours due to COVID-19 (though around 12 per cent were working more hours).

With pressure on Australian incomes, banks have begun offering financial support to their current mortgage customers. But on the other hand, some banks have also begun to tighten their credit policies for new borrowers, to help reduce the risk that these borrowers could end up unable to afford their loans.

What restrictions are in place? 

Not every lender has begun putting restrictions and limits on new loans, and those that have are using different criteria to update their credit policies.

Some of these measures may include:

• Requiring extra paperwork to verify your income and expenses, to help ensure you could still afford a loan if things got bad.
• Requiring extra security for a mortgage, such as a higher deposit or more equity, to ensure a lower Loan to Value Ratio.
• No longer assessing home loan applications from borrowers working in “high risk” areas, such as casual and contract employees, or self-employed borrowers who are involved in industries directly impacted by COVID-19, such as airlines, tourism, hospitality and retail.
• No longer offering certain types of higher-risk home loans, such as debt consolidation, equity release or cash out loans, or high-LVR loans such as 95% loans. 

Keep in mind that these restrictions may not apply to everybody. Borrowers working in certain essential industries, such as healthcare, may be able to apply for home loans without having to worry about these extra restrictions, an may even be offered extra financial relief.

Is now even the right time?

On one hand, it may seem like a good time to apply for a home loan. Some real estate commentators are forecasting that property prices could drop over the next few months, so buyers could be in a position to swoop in and grab a bargain, if they’re clever and lucky.

However, even if it seems like a good time for you to apply for a home loan, the extra limits that some banks are placing on new mortgage lending may make your application a bit more challenging. Unless you have a relatively secure job, can provide plenty of security for the mortgage, and are applying for a relatively low-risk loan, there’s a chance that the bank may decline to lend to you. This is to protect your own finances as much as the bank’s – a responsible lender won’t provide a loan to someone if they suspect it could put them into mortgage stress if times got tough.

If you’re not sure if now is the right time to apply for a home loan, consider contacting a lender and/or a mortgage broker to learn more about exactly what eligibility criteria are in place. Consider your income and expenses so you’re confident you could afford the loan before you apply and compare home loans to find a mortgage with the right features and benefits to suit your needs.

Compare home loans in Australia