Finance | 11 August 2020

Financing a Home During Corona: Your Questions Answered

by Carlisle Homes

Record low interest rates, flattening house prices, generous government grants – while the COVID-19 crisis has brought a level of uncertainty to everyday life, if your job is secure and you’ve been in the market for a long time and are financially prepared, there are plenty of reasons why now might be the perfect time to buy a home.

But has the pandemic made it tougher to secure a home loan? And what are the loan-application pitfalls to be aware of? We spoke to Colin Sheppard, managing director at Loan Studio, to find out.

Is now a good time to buy?

Yes. With record low interest rates and a downturn in market prices, there has never been a time in history when buyers have had such a unique opportunity to buy.

The market has moderated in a majority of regions, which provides a fantastic opportunity for applicants with strong employment conditions. In particular, knockdown-rebuild purchasers may find far more favourable conditions than in recent years, with a good supply of suitable properties on the market.

When you consider the average rental yield is 4-5% and interest rates are as low as 2.5%, this represents a real opportunity for investors looking for value. And now more than ever, buying in the area you’ve had your eye on might be an option – particularly if you’re considering a knockdown-rebuild and creating your dream home (learn more about knockdown-rebuilds here)

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Carlisle Homes offer a wide range of options for customers seeking to knock down and rebuild.

How much have house prices fallen?

The majority of regions have fallen around 10%, although some areas remain stable. Good properties are still maintaining their value and being sold for a premium price.

Do you expect prices to fall further?

Not really. There might be a slight dip in prices as the market reacts to ongoing Covid-19 news, but this will correct quickly given current market prices and low interest rates.

What do you think will happen to prices when the pandemic eases?

When things start going back to normal, we will have a huge backlog of supply and demand that should generate plenty of activity in the market. This normally means sharp price increases.

Is it harder to get a home loan during COVID-19?

Yes. Lenders are uncertain about applicants’ employment situation, which makes it harder to get a loan.

COVID-19 has also made it more challenging for brokers, lenders and clients as they get to grips with technologies such as zoom to complete things such as loan-application appointments.

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While lenders are being more cautious, for people with secure work the current market offers an excellent opportunity to enter the market.

Has lending criteria changed?

It has. Lenders are a lot more cautious about part-time and casual workers, and they are reviewing the financials of self-employed workers much closer to determine any downturn in revenue. Lenders have also reduced how much overtime, commission and rental they are prepared to accept when servicing an application.

But don’t let that put you off. If your employment conditions are secure and you’ve been saving for a long time but have been struggling to get into the property market due to demand, now can be a great time to buy.

Do you expect interest rates to stay low?

It has become clear that low interest rates are here to stay for many years to come. This offers great peace of mind when it comes to repayments.

Has the minimum deposit lenders require gone up or down during COVID-19?

It has gone both ways; some non-lenders have decreased their deposit requirements and others have increased it. None of the major banks have reduced their deposit requirements.

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The current low interest rates, government grants and decrease in property prices mean that now is an excellent time to consider an upgrade to a larger property for your growing family.

What government help is available?

The First Home Owner’s Grant (FHOG) provides $10k for first home buyers in metro Victoria and $20k in regional Victoria (learn more about the grant in this article).
In addition, first home buyers spending up to $700k are eligible for up to a 50% discount on stamp duty.

The Federal government has also introduced a $25k HomeBuilder Grant for any owner-occupied property purchase up to $750k. However, the distribution of funds has yet to be finalised, which is creating considerable confusion in the market. Here’s an article that covers the HomeBuilder Grant in more detail.

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Our new display homes at Cloverton Estate in Kalkallo offer a range of suitable options for buyers wanting to upgrade their homes. Pictured here is the Astoria Grand.

I’m thinking of applying for a home loan now – what should I consider?

  • Is your job secure and current income level achievable? For example, are your overtime, bonuses and commissions going to continue?
  • How much deposit do you need and how much should you be saving each month to achieve this goal?
  • What can you afford to pay in monthly mortgage repayments? This will determine your maximum spend and borrowing amounts.
  • What’s your credit score like? Pay off all your existing debts early, such as phone bills and credit cards, to ensure you have a high credit score to improve your credit worthiness to a lender.
  • Do you have evidence to show that you are in control of your household expenses? It’s also wise to look for ways to reduce your living expenses as this will have a direct impact on your maximum spending limit. You can get some great budgeting tips here.

"With record low interest rates and a downturn in market prices, there has never been a time in history when buyers have had such a unique opportunity to buy."

My job is secure, but I’m not quite ready to buy – should I get pre-approval now?

Yes. It’s wise to get pre-approval early to ensure you are assessed at today’s criteria. Lenders will only tighten their lending policies going forward so if you hold a pre-approval with favourable lending conditions, most lenders will need to honour the original pre-approval terms.

It has never been more difficult for a broker to accurately assess a client’s borrowing worthiness as many lenders’ appetites change on a weekly basis.

The general rule is ‘always get a pre-approval for peace of mind’.

I’ve already got pre-approval – are lenders likely to review my loan status during these times?

While in most cases, a lender will honour your original lending terms, they will also conduct an updated credit and employment check prior to issuing any unconditional approval. Lenders are concerned that an applicant’s income may have dropped, their overtime stopped and/or the applicant has been placed on leave without pay.

What is a COVID-19 Contract of Sale Clause – and do I need it?

This is a new clause that allows the purchaser up to 14 extra days to settle a property in the event something COVID-19-related happens that prevents a settlement being completed by the due date.

The majority of vendors are understanding and accommodating when it comes to unforeseen events, but it’s always better for purchasers to have this extra layer of protection.

Want to learn more? Check out the Financial Services section of our website or speak to one of our friendly loan specialists on 1300 978 051. Take a virtual tour or book an appointment for a guided virtual tour of one of Carlisle Homes’ display homes across Melbourne here.

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