Borrower Update: The Keys to Ensuring Your Finance Application Success
As the economic effects of Covid-19 continue to evolve rapidly, it is critical for borrowers to remain well-guided when applying for finance.
Covid-19 and Finance Approvals
It’s no surprise that financial institutions have tightened their credit assessment and toughened their credit criteria. Sure, the government has relaxed regulations, making it easier for lenders to approve loans, but in reality lenders remain obligated to ensure a borrower can repay a proposed loan and do so without hardship.
The Federal Government, State Government and even Credit Providers themselves have provided some excellent relief strategies to help struggling Australians through these times, particularly early on. As good as these relief options are/were, utilising these options also indicates that you have recently, or currently are, experiencing financial hardship of some sort…. not what a lender wants to see in a potential borrower!
Some tell-tail signs that a borrower is experiencing Covid-19 Hardship.
The Australia government announced that eligible Australians may be able to access up to $20,000 of their super early IF experiencing severe financial hardship. Whilst this sounded tempting, withdrawing your super (aside from costing you double when it comes time to retire) is a major red flag for lenders when assessing finance applications.
If someone has applied for a superannuation withdrawal, they are technically and legally declaring that they are in financial hardship. When a lender sees this withdrawal, they can only assume your declaration was truthful and therefore you are in hardship.
Job-Keeper has been a fantastic initiative to keep businesses running and people employed. From a lending perspective, however, it demonstrates potential instability in the applicant’s employment continuity. In other words, although you are gainfully employed (and your employer’s financial position is not in your control), you could be rejected based on “job-keeper” appearing on your payslip which, to a lender, reveals your that your employer has experienced a substantial downturn in their business, in turn suggesting your job may not be safe!
The outlook on this has eased somewhat now, with round one of Job-Keeper finished and a new round commenced, we suspect that lenders will likely frown upon applicants still receiving Job-Keeper.
Mortgage or Loan Payment Holidays
It is not surprising that there has been a related increase in stress regarding the payment of mortgages and loans whilst people navigate through the Covid-19 crisis. Lenders have acted accordingly giving borrowers a chance to pause or ‘defer’ their mortgage and loan repayments.
If have already or you are considering a mortgage or loan repayment pause, remember the implication this will have on a future loan application. Similar to Super withdrawals, by freezing your repayments on existing credit facilities, you have demonstrated current or recent financial hardship to a potential lender.
Managing your living expenses
One measure financial regulators have also put in place to ensure financial institutions are lending responsibly during this time is more detailed assessments to demonstrate that you can meet proposed loan repayments. As your finance brokers, we also have a legal duty to ensure that the loan we find for you is in your best interests.
Previously, your day-to-day expenditure was assessed with a Household Expenditure Measure or ‘HEM’ which averaged living expense figures to estimate living costs. Whilst this still offers an indication to lenders of what you can afford to repay, they now seek a more detailed analysis of what and how much you are spending. Most lenders require a detailed break down of living expenses and usually need to look at your last three months (or more) of bank account and credit card transactions.
If Covid-19 has forced you to regularly overdraw your accounts, cover living costs through credit cards or required you to regularly cash advance, you may be at risk of being declined on a loan application.
Now is a great time to review your discretionary (non-essential) spending and improve your credit assessment profile. Do you really need that new suit or dress when you are working from home?
Don’t Worry… We Have Solutions
We understand that for many, these are uncertain times as the situation surrounding the pandemic continues to unfold in Australia and globally. Luckily, Alpha Lend are here to support you in exploring the solutions that may be available to you.
If any of the above matters concern you or you simply want a better understanding of the current financial climate and what you can borrow or do to improve your borrowing power, now is the time to reach out.
Our qualified brokers are here to answer your questions and look at your circumstances to make sure you’re prepared for any potential changes to your financial needs.
Get in touch today via the link here or call (07) 5534 8000 to discuss in person today.
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