LENDERS AIM FOR LOW RISK

New restrictions on borrowing cash is making life more complicated

IT’S another week and yet another set of changes to lending practices that will offer more hoops for buyers, sellers and brokers to jump through when it comes to financing or refinancing their home or investment property.

So, what are these latest changes and how will they affect you? Where casual employment had been considered reasonably favourably, the three-month minimum employment period has now increased to six months for some lenders, meaning those people who have changed jobs recently might now have their earnings discounted when it comes to borrowing – a big factor in determining your borrowing power.

For a number of lenders, it isn’t just the amount of time you have been in a job; it’s the type of job (and more importantly, the type of pay), that can determine whether you get a yes or no. For those on a straight salary and employed full-time across 38 hours a week, it’s pretty straightforward. For those where significant overtime or commission plays a big part of your take-home pay, be prepared for some banks to discount this amount in their calculations. Why would they do this? After all, it’s real money, right? Well, while you might be paid with real money, that seemingly isn’t the problem.

You see, banks are in the business of managing risk, and while you might have a consistent history of certain overtime or commissionable pay, “past results are not a guarantee of future performance” – which is a line so vastly familiar with so many lending institutions. With nothing set in stone to say you’ll continue to earn that extra money, lenders will look to hedge that bet.

If you own an existing investment property and are counting the income from it in your calculations, guess what? With some parts of the country experiencing higher levels of unemployment than others, this is another area where lenders are being a bit lean on income – allowing for either longer periods of vacancy or reduced rent.

I haven’t had much positive to say so far, have I? So, let me assure you that it’s not all doom and gloom – while there may be more hoops to jump through for finance, interest rates are incredibly low and different lenders will have different risk profiles, so just because one bank says no, it doesn’t mean all will.

Now is the time to be talking to your broker to help get across the line. And while you wait to find out – keep saving!