Demand surges for non-conforming loans

by Madison Utley27 May 2020

A mortgage brokerage which specialises in non-conforming loans has reported a “substantial increase” in enquiries from loan applicants who have been rejected elsewhere due to the economic pressure introduced by the COVID-19 pandemic.

Sydney-based has stepped in to service the swathe of borrowers newly moved out of the prime space by the stricter lending criteria traditional lenders have introduced since the outbreak of the virus.

“These applicants who have been declined for a loan or by lenders mortgage insurance due to policy change or their credit score have been turning to specialist lenders like Non-Conforming Loans for a solution,” said managing director Ray Ethell.

According to Ethell, the demand has been partially driven by the lenders and mortgage insurers that have placed an embargo on borrowers in industries particularly impacted by COVID-19, such as the retail, aviation, hospitality, real estate and entertainment sectors.

“Applicants are not being assessed based on their individual circumstances,” he explained.

“Some lenders have announced they will reduce acceptable income from commissions, overtime and bonuses to only 50% of income. This is happening in some cases where there has been no change to the applicant’s take-home pay. Income from dividends is also no longer to be accepted for serviceability assessments by some lenders.”

However, unfortunately, those aren’t the only sectors feeling the squeeze.

“Casual and contractor applicants have also been dealt a heavy hand by some lenders as they are not able to use their income for servicing unless it as a secondary income with a salaried employee,” said Ethell.

“Rental income has been reduced to only 60% of rental paid and the self-employed have had maximum loan to value ratio (LVR) reduced to below 80% and a reduction of 30% of income for servicing for other lenders.”

While the situation may be disheartening for would-be borrowers who are now facing rejections, Ethell has encouraged those declined by traditional lenders to remember they may have other options.

“It is important to speak with a specialist lender or an experienced mortgage broker that is up with all the policy changes and can guide you through the lending landscape to find a financial solution,” he concluded.