Can I Still Get A Loan?
Updated: Jun 29, 2020
We are certainly living through extraordinary times and there is significant uncertainty about many aspects of our daily lives. Many of you may be wondering “can I still get a loan?”. From job security to social distancing, changes are evolving daily and it’s hard for us all to adapt quickly and find a way through.
Impact on Credit History
There has been much talk about lenders offering assistance to home loan customers in the form of deferring payments but what other impacts is COVID-19 having on the home loan industry and how could these affect borrowers?
On the 6th of April 2020, the Australian Banking Association announced that Any Australian who is granted a six month deferral on loan repayments on their mortgage or other credit products, such as a credit card, will not have their credit rating affected as a result of that deferral, provided they were up to date with repayments prior to COVID-19.
This is a critical development as it had been feared that those people who needed to take up the deferred loan repayment arrangement may have been left with difficulties refinancing their mortgage in the post COVID-19 period. Prior to COVID-19, borrowers that had a hardship arrangement in place were faced with significant difficulties when applying for a refinance arrangement due to their hard ship track record. The question is to whether it is ‘responsible’ to lend money to someone experiencing hardship has been relatively clear with ‘no’ being the typical answer. It is heartening to see that those impacted by COVID-19 will not suffer the consequences of this situation when it comes to the potential for a future refinance or loan modification and Melbourne Mortgage Advice welcome’s the ABA’s response.
Impact on Lending Policy
Over the past few days, we have started to see requests from lenders seeking assurances that a borrower’s financial circumstances have not been adversely affected by COVID-19. The application of the responsible lending guidelines has arguably, never been more relevant. Is it responsible to lend money to someone with or with the potential for income loss? Providing lending to a borrower with a reasonable potential for repayment difficulty is blatantly irresponsible and these loans should not be arranged.
We are however concerned for those that may have held a finance pre-approval issued before the COVID-19 impact, who have now purchased and require formal approval of finance. A pre-approval is always, at a minimum, subject to the lender verifying a borrower’s circumstances at the time of seeking formal approval. A pre-approval essentially says “based on your circumstances today the lender would be willing to approve the required loan” however there is always the caveat of the lender having the right to NOT proceed to Formal Approval for any reason. The impact of COVID-19 on a borrower’s income could be the exact reason a lender chooses not to proceed with a loan and a home buyer could be left in an extremely difficult situation.
For borrowers in affected industries including hospitality, entertainment and retail (amongst others), lending options are drying up. From our perspective at Melbourne Mortgage Advice, new lending should not be provided to those in situations of current or potential hardship without a reasonable and reliable contingency plan in place (for example, relying on a joint borrowers stable (unaffected) income).
Responsible Lending Guidelines are legally enforceable by ASIC and it is incumbent upon industry participants including lenders, mortgage brokers and lenders mortgage insurers to ensure that any lending arranged is done in a responsible manner that considers with priority, the potential of hardship to the borrower.
These are difficult times and the lending landscape is shifting rapidly to apply the Responsible Lending provisions in a prudent fashion. It has never been more important to obtain professional mortgage advice before considering any new loans or increases to your existing lending situation. At Melbourne Mortgage Advice, we are ready to provide you with the expert guidance you need before making your next lending or property move.