COVID-19 and home loans – All your burning questions answered

COVID-19 restrictions have led to all kinds of upheaval in Australia. If you were all set to enter the property market or buy another home, you might have held off due to the uncertainty. But what has changed when it comes to buying a property during COVID-19?

Talking to a mortgage expert and Savvy Managing Director Bill Tsouvalas, we answer all the burning questions on the minds of would-be homeowners. As always, we recommend consulting a financial professional before making any significant financial decisions.

Answers to all your questions about home loans amid COVID-19

Can I get a home loan on JobKeeper or JobSeeker?

In most cases, no. But it is a possibility. JobKeeper and JobSeeker are temporary stimulus measures. They are meant to help people who have been forced to take leave or cut hours to come off the measures and re-enter the workforce eventually. If your income is being supplemented by JobKeeper (e.g. you are receiving the $1500 payment on top of other income) you will need to show a lender documentation proving you can keep up repayments on a home loan. A letter from your employer and bank statements may satisfy some lenders.

What happens if I can’t make my mortgage repayments?

It may put you at risk of default. However, during COVID-19, many banks have been granting ‘mortgage holidays’ or a pause on repayments for up to six months. Lenders are also obligated to allow for hardship variations and other financial assistance if you request it, as part of responsible lending. Don’t wait until the last minute – skipping payments in most circumstances is recorded as a ‘mortgage in arrears’ and negatively impacts your credit score. Also be aware that while you aren’t required to make repayments, interest will still accrue. Here are some ways to ease the financial burden of your mortgage during the pandemic.

With the latest interest rate cut, should I refinance?

If you haven’t looked at your home loan package in at least a couple of years, you should renegotiate your loan with your bank. If they are unwilling to budge or pass on the rate cut, there are plenty of lenders and banks who will be glad to have your business. Remember to do the calculations beforehand – if the refinancing means you’re substantially better off in the short- and long-term, it’s something you should seriously consider.

The government says that the rules around lending are strict. What should I look out for?

Some of the lending rules were changed in the wake of the Royal Commission into the Banking and Financial Sector in 2018. This restructured how banks and lenders determine eligibility for loans, comprehensive credit reporting, and other calculations such as expenditure. This means lenders will look at discretionary spending more closely, such as ordering food online, buy now/pay later services (AfterPay, ZipMoney, etc.) and whether your credit card is near its limit. The government has flagged changes to make everything more flexible; but until that happens, you’ll need to keep an eye out on these sorts of purchases and debt levels before you apply. As always, you should get a copy of your credit history, so you know where you stand ahead of applying. You can get your credit score for free. Check MoneySmart for more information.

Is this the right time to buy?

There isn’t a ‘one size fits all’ answer. It depends on your individual circumstances. However, interest rates are at record lows, and house prices in some places are also softer than usual. If you have a substantial deposit saved and a stable income, entering the market sooner than later is always preferable.

Some tips to streamline your application

As discussed earlier, you should look over your credit history and expenses to figure out where you stand before approaching a lender. You should also have a substantial deposit saved up – though if you qualify for the First Home Loan Deposit Scheme, you may only need 5% of the purchase price saved to avoid paying for Lenders Mortgage Insurance.

Remember to do as much research as possible and apply within your limits. Your best bet is to use a mortgage broker – they can look at your application and find a lender that will look at your circumstances more favourably and pass on any potential savings.

Disclaimer: This is a general guide only and is not intended as a substitute for financial advice.