How our spending habits during self-isolation will influence our ability to secure a home loan

OPINION:

Home Loan market summary

In the last few years, we’ve seen a time of upheaval in the home loan market.  From government clampdowns via APRA on Interest Only and Investor Lending in 2014, which resulted in interest rate differentials between investment loans compared to owner-occupied loans, and saw property prices drop around the country. These restrictions were then lifted during 2018 with the aim of stabilising these property price falls. Around the same time, from December 2017 and running for 14 months we had the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry which handed down its final report in February 2019. After this we had the inevitable fallout as non-acceptable culture and behaviour was exposed, and now just when things were looking to return to a more normal period, we have the unforeseen and devastating Coronavirus which is impacting us all worldwide. So, what to make of all this? 

Changes in home loan requirements

An outcome of all the above has been a renewed focus on living expenses as part of a Banks approach to home loan assessments, with them generally looking at an applicant’s Bank statement transactions over the three months prior to the application, in order to make an assessment of where spending has gone.

Will spending factors during self-isolation affect our ability to secure a home loan?

The spending people do now, in this period of Isolation, will have an effect on their standing as a home loan customer when this period of COVID-19 imposed restriction lifts. Being confined to home, it may be tempting to hit the internet, shopping from home using ZipPay, Afterpay, etc and ordering in food, all these debts that appear on your Bank Statements will be factored in when assessing a home loan application. Additionally, Banks are now starting to look for increased documentation, particularly for applicants that are employed in industries that have been significantly affected by restrictions, such as Tourism and travel-related services, Hospitality, Retail sales sector, and others. In the more extreme cases, income earned from applicants who are still employed in these industries is not even being considered by some Lenders.

As this period of social and trading restrictions continue, then it is not unreasonable to expect more and more lenders to get tougher in their assessment criteria, all of which means it is going to get harder, particularly for some, to qualify for a home loan. While some people, not unexpectedly, might put their property purchase plans on hold for a period of time, there are still many people who already have home loans that are wanting to take advantage now of the historically low-interest rates, and even though they might still be employed, there is a chance they are going to find it harder to get a new home loan approved. No matter if you want to refinance, or purchase a property, it really is a time to get back to basics, as much as possible during this trying period. Keep an eye on discretionary spending, take advantage of as much of the Government help that is available to you, and talk to your bank early if you do need to discuss what they have on offer in terms of home loan payment relief.