Banking: Michelle Baltazar

The pandemic is giving would-be buyers a once-in-a-lifetime opportunity

Before the coronavirus crisis hit early this year, I had plans to demolish my old home and potentially build two townhouses on the same land. I had already agreed on a timetable with my architect, but then the pandemic hit and scuppered my project.

I’m sure many of you are in the same boat in terms of having an investment plan that didn’t factor in this year’s shocking turn of events, and are wondering whether you should proceed with your investments or wait until the crisis is behind us. But with the JobKeeper scheme extended until March 2021, it looks as if most decisions have to be put on ice for at least two years if you want to take a very cautious stance in this recession.

I knew my financial situation wouldn’t be as strong as it was before Covid-19 because we are all exposed to the market malaise, but I didn’t know exactly by how much.

I spoke to Mark Huynh, loan consultant at Freedom Lend, and Sharon Xie, credit manager at Home Loan Experts, to shed some light on what has changed in terms of the borrowing power of prospective buyers and whether any opportunities have emerged as the government and private sector unite to stimulate the economy.

Here are some of the advantages emerging from the relaxed rules.

Xie says lenders are lending money to those on JobKeeper payments as long as certain conditions are met. Typically they will compare pre-JobKeeper income with current income, and use the lower amount to test if the applicant can afford the loan.

“Providing there are no changes in the borrower’s employment situation in the near future, their borrowing capacity wouldn’t change despite Covid-19,” says Huynh.

In fact, prospective borrowers might be pleasantly surprised that they could potentially afford a more expensive property. This follows regulatory changes only two years ago when the governing body APRA lowered the effective buffer that the lender must consider when lending funds.

Freedom Lend, for example, would previously gauge the applicant’s ability to service the loan based on the actual rate plus 3%, or 7.25%, whichever was higher. Today the borrower must be able to make loan repayments for the actual rate plus (a lower) 2.5%, or 5.45%, whichever is higher.

Xie says repayment holiday agreements are not registered on people’s credit records, so their ability to borrow funds or refinance will not be affected if they decide to defer their loans for six months.

And in the past month many lenders have also lifted their previously strict assessment criteria against those with unstable employment types such as the self-employed, casuals and contract workers and those relying on a commission, bonus or overtime.

“Several lenders have rewound these restrictions as they believe if you are still earning that income now then you’re likely to continue receiving it,” says Xie.

There are caveats. Unfortunately, some

lenders still have a temporary ban around industries that have been severely affected by Covid-19 such as tourism, retail and hospitality. Banks will also look more favourably to those who have ceased their loan deferrals or didn’t take repayment holidays.

But the pandemic doesn’t mean you should put off borrowing altogether. There’s the possibility of saving tens of thousands of dollars right now because of stamp duty changes (if you live in NSW), first homebuyer schemes and additional grants and some lenders waive mortgage insurance subject to new terms and conditions that didn’t exist before Covid-19.

If your finances are not as good as you want them to be, Huynh suggests working on a six-month plan to improve your record (see tips). Then you might be able to take advantage of a once-a-lifetime opportunity to get into the market.