Can couples still get a mortgage if one partner has lost their job?

The jobs situation is as dire as it’s been this century. In April, the unemployment rate tipped 6.2 per cent, the highest it’s been since September 2015.

Worse, the participation rate, the percentage of people of employment age who have a job, is sitting at just 63.5 per cent, a 15-year high.

But the banks’ doors are still open – for the right type of borrower.

However, banks are taking a much closer look at home buyers’ ability to service a loan.

Domain Home Loans executive director and Lendi chief executive David Hyman says consumers can thank a federal government initiative called the term funding facility for banks’ ongoing appetite to lend during the pandemic. This gives banks access to low-cost credit the Reserve Bank of Australia makes available.

“The banks are open for business as a result and very much still lending. And we’ve seen really strong consumer demand for loans,” he says.

Nevertheless, Southshore Finance director Michael Coombes says banks are concerned about COVID-19’s effect on employment and property markets.

“This is evidenced by almost-daily credit policy updates. Their concern is not so much the effects being felt in the market today, but what will happen in three to six months.

“Loans are still being approved, but banks have no tolerance for anything outside their credit policy, not even the most basic matter.”

Coombes says lenders will take into account JobKeeper and JobSeeker payments when assessing loan applications. They use whichever is lowest, the support payment or normal income, taking into account both parties’ income and expenses, assuming two borrowers apply for finance.

“I have seen cases where clients were already under contract to buy a property when they were stood down or had their hours reduced,” Coombes said. “They had no choice other than to seek finance on this basis.

“There may be an argument to proceed if they have good equity in an existing property or other assets and a sound capacity to service the loan based on support payment income. But it would not be sensible to seek finance in most cases where someone has lost their job.”

As might be expected, banks are laser-focused on lending responsibly after the financial services royal commission fracas.

A spokesperson for the Commonwealth Bank confirmed the bank has introduced two questions to loan applications that specifically address whether COVID-19 has affected a customer’s earning capacity. These are:

• Are you aware of any changes to your broader situation that may impact your earning capacity?
• Have you been advised of any changes to your employment circumstances or income levels that will affect your ability to meet any existing debts or expenses?

CBA also wants to see evidence from a potential borrower’s most recent pay cycle to verify income. It may also ask for a letter from the borrower’s employer to check claims about changes to income. Self-employed people need to supply recent BAS statements and business projections.

An ANZ spokesperson also acknowledged that as the COVID-19 pandemic was impacting Australians’ income and employment stability, it was also making more pointed inquiries into loan applicants’ employment and income.

“Borrowers will be asked to provide more recent examples of proof of employment or any change in employment,” the spokesperson said. The bank says its home loans team is continually reviewing its lending criteria.

Overall, banks need to be certain applicants can comfortably service a loan before they will extend finance. Which is, after all, only sensible. It’s in no-one’s interest to approve a loan borrowers cannot afford to pay off.