Borrowers had a nice run from December last year up to June this year. Victoria made it out of the second wave lockdown and we saw what looked like a sharp V-shaped economic recovery.
House prices started a march upwards, the majority of borrowers who had taken up relief measures from banks resumed regular repayments, and most lenders all but removed the more restrictive credit policies which were introduced when Covid first hit.
In addition to this there was a lot of transactional activity. Many vendors listed their properties for sale and the mood within most credit departments at banks seemed upbeat.
And then Deltra struck. NSW went into lockdown and Victoria followed shortly afterwards. There’s talk of easing restrictions when vaccination rates reach certain thresholds but we don’t yet seem to have a clear roadmap out of the current lockdowns like we had last year.
There appears to be uncertainty within the credit departments at many banks now. We haven’t seen many hard changes to policies yet – for example last year there were requirements for additional/ consecutive payslips, or more recent business bank statements for self employed borrowers, and heavy restrictions were imposed for borrowers in the more severely impacted industries like hospitality, tourism, etc. – but in speaking with bank contacts and assessors daily like we do, it’s evident that confidence has waned.
Certain credit officers we’ve dealt with have started refusing any deviations from policy, whereas in ‘normal’ times (whatever that means now) we often get exceptions to policy when there are sufficient strengths or mitigants to a deal. That’s the more pragmatic and commercial approach.
On a more positive note though, there are numerous lenders who are still very much ‘open for business’. For example for self employed borrowers showing Jobkeeper, ATO cashflow boosts, and other government subsidies from Covid on their financials/ tax returns, these lenders are including such components of income when undertaking assessments.
Contrast this with other banks whose policy it is to strip out any such forms of income, and then when comparing an earnings trend over the past two years insist on there being a material decline, in which case it’s a hard ‘no’ in terms of the application outcome.
This is an example of where Bank A might be able to offer a client millions of dollars in new lending, whereas Bank B might be unable to offer anything.
Other lenders have maintained application processes which are not onerous from a documentation perspective which makes things a lot easier too. Other banks are still asking for war and peace, and then interrogating…
As we see out the year, it wouldn’t surprise me if we continue seeing a growing divergence in credit policies between different funders.
There will be lenders who see opportunity in the current climate, and actively decide to grow market share by keeping or loosening their policies, and there will be others who are perhaps more nervous about their financial positions, or the economy in general, who pull back.
My advice to borrowers is to compare lenders not just based on interest rates, fees and charges. Turnaround times and credit policies (think ability/ willingness to lend) could become far more important, particularly with the more complex scenarios.
Like any good mortgage broker we follow these changes to credit policies across all banks very closely. We’ll continue doing so and keep you informed.
Stay safe everyone. Thank you
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