With the football season reaching its climax, the federal budget fresh on our minds, even the spring racing carnival upon us, the talk has been all about Winners and Losers. So, who are the winners and losers when it comes to borrowing money in 2020?
Getting finance is harder in 2020 than 12 months ago. Lenders are rightly cautious as unemployment grows, with many businesses closed or dramatically impacted.
Yet, lending that makes sense is still being approved. It’s about understanding the new “COVID normal” in the home loan world.
Has your income been impacted by COVID?
Do you expect your income to be impacted going forward?
If you answered NO to both, then you’re a winner in the lending stakes.
When you earn a base salary, lending will proceed as normal. For a business owner unaffected or marginally affected by COVID, lending will also be possible. But expect lenders to ask for verification using BAS and bank statements.
If you’ve lost your job during COVID, no income means no loan. Similarly, business owners in industries like tourism and hospitality that have effectively shut, will find it hard or impossible to get a loan.
Unfortunately, Job Keeper won’t be able to help, as lenders will probably exclude such income in assessing what you can borrow.
If you’ve taken a pay cut and can demonstrate that it is temporary, then there’s scope to borrow based on your full pay. You just need to show how you’ll manage until full pay resumes.
When you rely on commission or bonus income to get the loan, many lenders will only use 60-80% of this income presently. Because lenders don’t expect that past earning patterns will be maintained in the next few years. Still, if your employer can confirm in writing, the variable income that you’ll receive in the next 6 to12 months, that might get you past this hurdle.
People with a history of late payments on loans or credit cards, or overdrawing accounts will find it tough. Lenders view this as a sign of financial hardship or an inability to manage finances.
Note: if you’re experiencing financial hardship, ask for hardship relief. Credit providers have support for those in need.
People employed in health and essential services such as nurses, doctors, paramedics, fire fighters and police are being well received with lenders happy to use 100% of overtime and allowances, often a big component of their income.