Getting a mortgage under Covid-19
I’m sure we can all agree that life has changed somewhat in the past few months, and that we are now living in an entirely new world, especially in a financial sense. This means the banks have had to also make a number of changes in how they assess potential borrowers, as to whether they qualify to meet their new lending criteria.
One of the biggest changes the banks have made is how they assess income. Before Covid-19, if you were on a salary, things were pretty simple - provide three months of payslips and you were good to go. Now one big factor the banks are taking into account is also how likely you are to be in employment in the future.
The tourism sector was hit hard with Covid-19, and this makes it hard for banks to lend to those employed in this industry. Likewise, anyone who gains their income from bonuses or commissions, will also have to work extra hard to prove that the amount they are earning is likely to continue. In many commission based industries, it is hard to know if the current sales they are making will continue at the same rate going forward after the impact of Covid-19. Those who are on this type on income and are wanting to borrow, will need to provide some proof to the bank that their future commissions will be similar to their current situation.
If you have been or are currently receiving a wage subsidy you must provide a supporting letter from your employer confirming you will remain on 100% income after the subsidy is completed.
It’s not all bad though, with many industries already back to it and many showing a boost in sales, income, or bookings over the past few weeks.
The other thing to consider income-wise is rental income. Banks have usually allowed applicants to use some of their income derived from flatmates, especially if they were purchasing with more than 20%. However we are now seeing some banks make changes to this, with some banks completely removing the ability to use flatmate income to cover the mortgage. Others have put in other rules around how much of this income can be considered, as they want borrowers to be able to prove that they can pay the mortgage themselves. Of course, this doesn’t stop you from getting a flatmate to help cover mortgage costs, however it’s just another factor to take into consideration when looking to purchase.
While the interest rates have plummeted, with most now under 3%, many banks are still using a rate of approximately 7% as a “test rate”, to ensure that you can afford the mortgage. This allows them to factor in the worst-case scenario, and while this test percentage might drop at some stage, it is likely to still remain around the 6% mark. While this can be frustrating for borrowers, it does give them some wiggle room if things change quickly.
If you are unsure if you are still in a position to buy, or are needing any advice, get in touch with us. We can assess your financial position and work out a custom plan that will get you on the property ladder sooner.