How is Covid 19 affecting an Expat’s ability to obtain a mortgage?
To say the Covid 19 pandemic has had a massive effect on the global economy would have to be the understatement of the year, it’s affected everyone in some form or another. Whether your income has been reduced or not, your ability to travel, to walk in the park, enjoy a beverage in a bustling street, have dinner with loved ones in a restaurant, exercise, catch up with friends, life has changed more dramatically than any of us could possibly have imagined! The economic downturn, Australia I now officially in a recession, this isn’t the recession we had to have, it is the one that we couldn’t avoid!
So, through all of the turmoil, what changes have Australian lenders made to their lending policies?
Interestingly, but not surprisingly, there has been a restriction on liquidity, eg there is less money available to lenders to loan, all lenders have implemented an information gathering process to identify how/if Covid 19 has changed income or is likely to change an applicant’s income.
Within this, certain sectors are identified as high risk, hospitality, retail, transport for example, lenders are open to an explanation of whether the applicant has reduced income and whether or not it’s expected to continue and for how long, at this stage lenders are income focussed and complying with their Responsible Lending requirements. As you would be aware air travel is virtually no existent, one client, a Pilot, recently applied for and was granted pre-approval for a purchase.
When we submitted the application, we provided detailed notes to the assessor, explaining the applicant was a 747 Captain, he flies freight and was currently working more than usual, so there are always exceptions that are worth investigating.
While liquidity has reduced, lenders are open for business, as long as you fit the profile they are looking for.
Lending to self employed expats has all but stopped, this is probably the only group where you can be confident, under the current policies, we can’t obtain a loan at this stage.
If you are employed, location and currency of income are also being reviewed very closely.
The major currencies (US$, UK£, HK$, Sing $, Euro, AED) are all still being loaned on, however, outside of these we are seeing a reduction in the number of other smaller currencies that lenders are willing to consider.
In my view, the challenge may come next year as bonuses for 2020 reduce or are simply not paid. For many expats’ bonus income can be a significant element to the overall remuneration package. All lenders have a policy around how they treat bonus income, for some the average of two years, others will take the lower of 2 years, either way, there is potential for this to be a significant factor when assessing a potential borrowing capacity next year, 2021 in some ways may be more challenging, from a borrowing perspective, than 2020.
What about the property market? It’s widely predicted that the pain in the market or potential drop in prices is likely to happen in Q3 and Q4. The property market is being held up by the Governments payments for Job Keeper and Job Seeker, both are to end in September (at this stage), in addition the Banks 6-month payment holiday, where repayments are being capitalised to the loan, this will also expire at approximately the same time. When you connect these two changes, it’s hard not to think there will be an increase of properties onto the market, potentially by distressed sellers. At this stage supply remains low as does demand, it is worth noting though the increase in the number of off market transactions. The market evolved very quickly as the limitations of movement and social distancing took hold, there is still demand for quality property in a desirable suburb though, this is true for buying and renting!
Key Points to Think About
- Restrictions in Liquidity
- Individual Situation
- Self Employed Lending Challenges
- Lending Currencies
- Price Drop for 3rd – 4th Financial Quarter
There is always opportunity in the market, the challenge is how to identify it.
We are certainly able to assist with obtaining a pre-approval for your home. When considering purchasing a property there are some key questions we feel are helpful to ask yourself;
- What is your strategy to identify and buy a property?
- Currently with the Australia border closed, what is your plan for viewing a home?
- Who are you going to ask to represent you in managing the transaction?