Now that we’re at Alert Level 2, it’s a good time to figure out where you stand. Find out what is happening in the market and what lenders are looking for in the new lending environment. A lot has changed since COVID-19 and this continues to change almost on a daily basis as the full impact is not yet known.
At a minimum, most lenders will be asking a lot more questions and requesting for additional supporting information, especially around income, to ensure they continue to make responsible lending decisions.
Income
Previously, if you were receiving a salary, lenders asked for your most recent three payslips to confirm your income. Now lenders are having to assess the likelihood of you being employed in the future and need evidence of this.
Some banks have also changed their policies around flatmate/boarder income, as they want to know that your base income is enough to cover the mortgage without relying on others.
Lenders will be asking
- Has your income been impacted by COVID-19? (ie. reduced income) And if so, to what percentage
- If your income is not at 100%, at what level will it be back at 100%?
- Are you working in an industry that is deemed high risk? (eg. Tourism, Hospitality & Retail)
- Is there likely to be any future impact on your income? Potential downsizing or redundancies in the business?
- If you’re relying on commissions, overtime, or bonuses as your main source of income, is this likely to continue?
- If you’re receiving rental income from investment properties, you’ll need to confirm that all your tenants are up to date in their rent payments
- If you’re self employed, you’ll need to provide significantly more information to confirm your income, such as - financials up to 31 March 2020, business bank statements, contracts, projections, and commentary around short, medium and long term cash flow.
Banks Affordability Assessment
When applying for a mortgage, most lenders use a “Test Rate” for affordability. This test rate varies slightly with each lender, but tends to be around the 7% mark – which is far from the interest rates currently advertised (ie. 2.69% pa).
Lenders use a higher interest rate when assessing your mortgage application, as they need to calculate for worst case scenario. If the past few months have taught us anything, it’s that things can change quickly!
This can be frustrating for home buyers, as they know in reality based on their incomes and current interest rates, they can afford a mortgage of X amount, but the lender approves a lower amount. Lenders need to ensure that they continue to make responsible lending decisions and not to put buyers at risk.
Reserve Banks Removal of LVR Restrictions
Despite the Reserve Bank announcing the removal of LVR restrictions for 12 months, most lenders have remained conservative around this. Lenders have a good reason to be cautious, as the economy is unstable and there are many people losing their jobs or having their incomes reduced, so they don’t want to give someone a loan they can’t afford to keep servicing.
However, there are now a few lenders that can approve up to 90% LVR for owner occupied properties and up to 80% LVR for investment properties. This is great for first home buyers, as it may mean their dream of owning their own home may be closer than they think as saving a 10% deposit is a lot easier than saving for 20%!
We recommend that you contact the team at Wayne Henry Mortgages to discuss your lending options if you’re wanting to purchase a property with high LVR lending.
Interest Rates at Historic Lows
Interest rates are at historic lows and they’re changing almost daily. It’s hard to keep up with all the interest rate changes, even as a Mortgage Adviser! One lender can offer 2.69% pa for 2 years while another can offer 2.95% pa for the same term. If your mortgage is expiring soon, we strongly recommend that you contact the team at Wayne Henry Mortgages as it’s our job to keep up to play with what is on offer in the market and to negotiate with your lender to get the best possible interest rate at the time.
With the low interest rates, there is the opportunity to shave years off your mortgage. If you lock in a new lower rate, but keep paying the same amount you were before, you’ll be repaying your mortgage much faster without feeling like you’re sacrificing anything.
Also with the interest rates being so low, it means that people that couldn’t previously afford a mortgage may do so now – which is great for first home buyers – just be prepared to provide additional information to support your lending application.
Contact one of the team at Wayne Henry Mortgages
The above may be confusing and it may be hard to keep up with all the changes in this new financial world post COVID-19, but this is what the team at Wayne Henry Mortgages specialise in. We can simplify the mortgage application process and provide you with options, as we have access to a wide range of lenders (including Kiwibank, where only a handful of Advisers can). We’re confident that we’ll be able to help you achieve your dream of owning your own home!
