Q: How can brokers help borrowers who may be at risk of having their loan denied due to employment issues?
A: Brokers need to leverage from all the different types of lenders they have on their panel. They need to speak to all their lender credit teams and BDMs to see what their credit appetite is for potential borrowers who have unfortunately been caught off guard if they have already committed – and basically, don’t put the client in the ‘too hard basket’ or leave any stone unturned. Naturally, lenders need to ‘lend responsibly’, so a thorough discussion needs to take place with the client on their ability to repay the loan. I always steer clients away from exchanging/committing on a property until they have an unconditional approval.
Q: Is pre-approval worth less now that these measures are in place?
A: In short, yes! There will be a number of people in a world of pain who have already exchanged and now have issues with employment. We are experiencing lenders changing their policy in regard to income, as they are being cautious about casual income, self-employed borrowers’ income, overtime and bonuses. Additional checks may be carried out with employers, and/or they may want additional income documentation from the self-employed. Although Thanks to the pandemic, there are a number of homebuyers who have exchanged contracts on a property and may have even passed their finance clause date. But now, as Raj Ladher, home loan specialist at Your Mortgage Broker, explains, employment issues threaten to derail their loan approval lenders may not officially have a high-risk category, naturally they will be more cautious with borrowers from, for example, the airline, tourism and hospitality industries.
Q: How long do you think these expanded efforts to check employment will go on for?
A: Lenders’ credit appetite is based on risk, and these rigorous employment checks will continue until they feel the potential borrower is not at risk. I would say the additional checks will carry on until such time as the economy and the unemployment rate bounces back. Banks aren’t being problematic with these additional checks; they are taking a common-sense approach and lending responsibly.
Q: If a borrower gets a loan and their employment is impacted weeks or a month after being approved, what do they need to do?
A: Most, if not all, lenders are offering hardship assistance for three to six months for borrowers who have been affected by the pandemic. If borrowers are affected, they need to liaise with the lender immediately to see what options they have, for example the option of interest-only repayments or a mortgage repayment break.
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and look out for an expert answer in a future issue.