How home loan applications have changed in COVID-19

The country’s four biggest banks have all tightened their lending criteria in response to the COVID-19-led downturn, making it harder for a range of Australians to apply for a home loan.

But home-buying hopefuls will also find it difficult to get home loans over the line compared with a year ago as a cocktail of COVID-19-led effects impact the application process, according to mortgage brokers.

This time last year, the property market recovered remarkably after the Morrison government’s election win cemented in place favourable tax settings for the housing sector, including capital gains tax and negative gearing.

It also coincided with APRA’s decision to relax lending restrictions, which allowed people to borrow money with more ease. 

But since COVID-19 shut down entire industries in Australia overnight in late March, causing millions of people to lose their jobs or have their incomes reduced, the way home loan applications are assessed has changed with it.

While all four of the country’s biggest banks have offered mortgage repayment holidays for their customers, all new home loan customers can expect more hurdles before getting an application over the line.

SmartMove mortgage broker Michael Letts said certain industries were problematic.

“If you’re in hospitality, aviation or tourism, they’re automatically flagged,” Mr Letts said. “They want to make sure your role and income hasn’t been affected.”

Even if you’re not in a hard-hit industry, home loan applicants can expect extra requirements before credit is approved, according to Mr Letts.

“Some banks are doing an employment verification just before settlement,” Mr Letts said. “One lender is asking customers to email from their work email. That’s quite extreme.”

“For self-employed customers, traditionally lenders ask for two years’ history but what they’re asking for now is your up to date BAS statements and trading statements to make sure your business is still operating,” he said.

ANZ bank’s credit policy has largely remained the same but a spokeswoman said its home loan applicants can expect “enhanced inquiries around their employment and income position and will likely be asked to provide more recent examples of their proof of employment or change in employment than in the past”.

While some banks have flagged particular industries as higher risk, most have discounted different forms of income, according to Foster Ramsay Finance principal and mortgage broker Chris Foster-Ramsay.

“Bonuses and commission were 80 per cent and now are at 60 per cent. Other types of income were dollar earned and dollar counted. That’s the biggest change,” Mr Foster Ramsay said. “The other one that will bite pretty hard is the change to self-employed income.

“You can’t get mortgage insurance if you are self-employed at the moment,” he said. “You now need 20 per cent plus the costs. It’s not negotiable.

“The gun is pointed at sales people in those incentivised industries. The reason for that is lending risk departments are concerned about whether there will be a snapback to the economy.” 

Meanwhile, Westpac has lowered its maximum loan-to-value ratio for self-employed applicants to 80 per cent and those who live in some areas which are heavily reliant on tourism to 70 per cent, according to a bank spokesperson.

Tourism postcode changes apply predominately to certain areas in Queensland, including Port Douglas.

It has also reduced the dollar counted on non-base income types such as commissions and overtime to 60 per cent. 

The Lending Alliance senior mortgage broker Keegan Rezek said applying for a home loan was harder but if an applicant’s income has not changed, they would be able to borrow the same amount as before COVID-19.

“If you’re impacted, categorically it is harder. If your income is less they will lend you less,” Mr Rezek said.

Application processing times are also delayed as shutdowns have affected turnaround times overseas.

“A good example of this is St George which has a lot of offshore processing [in the Philippines]. Now they went through a full shutdown,” Mr Rezek said. “There was a point there that loan documents ended up taking four to six weeks [to process]. They had to effectively open a new office in Australia to run that part of the business.

“Even generic inquiries we make with lenders are much harder because the phone lines are blocked,” Mr Rezek said, adding that processing times have since improved.

“It’s very unique. The underlying thing is credit is harder to access but a lot of that is hopefully temporary.”

Mr Letts said ANZ, Westpac and St George had all experienced an increase in the turnaround on their home loan applications.

“ANZ’s turn around now is 26 business days,” Mr Letts said, adding that Westpac took 30 days to approve home loan documentation in some instances.

For some home loan applicants, it might be easier to access credit than before, according to Mr Letts.

“If you’re in essential services there’s a lot of allowances and overtime. They’re using 100 per cent of that income.”

While NAB has not made changes to its loan-to-value ratio, or home loans based on property types or postcodes, it will continue to support lender mortgage insurance waivers of up to 90 per cent for eligible medical professionals.

Meanwhile, CBA will ask for the applicants to include their most recent pay cycle and introduce new verification and calculation requirements for customers receiving JobKeeper payments.