The lenders making it easier to get a home loan

Whether you’re looking to refinance or get a new loan, it may now be easier to get your application across the line.

The Reserve Bank increased the cash rate for the twelfth time in June and it is now sitting at 4.10%. According to Canstar, the latest rate rise means borrowers with a $500,000 mortgage over 30 years will see their repayments increase by $84 a month, assuming the rate hike is passed on in full. That means they will be paying about $1,200 more per month on their repayments than they were in April 2022 before the first rate hike.

There is some good news for borrowers though. A number of lenders have made changes to their policies that could make refinancing or securing a new loan easier. Here is a look at some of the changes.

Lowering of stress test

When assessing loan applications lenders need to place a serviceability buffer which the Australian Prudential Regulatory Authority (APRA) has set as three percentage points on top of the advertised rate. So if you applied for a loan with an advertised rate of 6%, for example, the lender would need to be satisfied you’d still be able to meet the repayments if the rate was 9%.

This is designed to protect borrowers from rate hikes but, ironically, the very regulation designed to protect consumers is working against them. It has made it harder for some borrowers to refinance to a lower rate loan resulting in them being stuck in a ‘mortgage prison’. This has been a big gripe of mine and I’m glad to see some lenders are taking action.

Commonwealth Bank

Commonwealth Bank has introduced an alternate interest rate serviceability buffer of 1% for select customers who are refinancing and meet strict eligibility criteria. It is only available to borrowers who are borrowing 80% or less of the property value, have had their loan for at least 12 months, and have a full income, expense, and liability verification. They also can’t have missed any repayments in the past 12 months. The loan will be written over a 30-year term.

Resimac

Non-bank lender, Resimac, has reduced its serviceability assessment buffer to 2.00% for all of its products.

Westpac, St George, Bank of Melbourne and BankSA

Westpac and its subsidiaries – St George, Bank of Melbourne and BankSA – now allow some borrowers who are refinancing their home loan to be tested under a “modified Serviceability Assessment Rate” if they don’t pass the standard test. To be eligible, customers need to have a credit score of 650 or more, have a good track record of paying down all existing debts in the past 12 months and the new monthly repayments must be lower than those on their current loan.

Changes to the treatment of overtime income

Overtime and allowances aren’t always taken into account when lenders assess loan applications. If you are paid overtime regularly and it’s substantial, lenders will typically only take 80% of your overtime pay into account.

Some lenders, however, have recognised that essential workers such as paramedics, police, firefighters and nurses earn a large chunk of their income from overtime, penalties and allowances and will take 100% of their overtime into account. Westpac, Bankwest, Bank of Queensland and Macquarie Bank are some of the lenders that allow emergency services employees to have 100% of their overtime and allowances assessed as part of their home loan application.

The latest lender to jump on board is Ubank. “Through regular review of our policies, we have identified occupations within the emergency services, medical and health industries where overtime and allowances are considered stable in nature. Ubank will take 100% of income averaged over a six-month period, ensuring that these dedicated individuals can access increased borrowing power and achieve their homeownership dreams,” a Ubank spokesperson told Canstar.

Other serviceability changes

Bankwest

If you are self-employed, you generally need to show two years of tax returns or financial statements but Bankwest is now accepting one year’s worth of financials.

Macquarie Bank

According to mortgage broking firm Home Loan Experts, Macquarie Bank has made two key changes to its assessment criteria – excluding private school fees from living expenses and waiving notional rent for singles living rent-free with their parents.

If you have a child/children in private school the fees will be counted as part of your living expenses which can potentially reduce how much you can borrow. If an applicant has sufficient savings to cover private school fees, however, Macquarie Bank allows these to be excluded from their living expenses.

Generally, for applicants who live rent-free with parents, Macquarie Bank factors in a notional rent of around $650 a month, which severely impacts their borrowing capacity. Macquarie Bank will waive that notional rent for singles with no dependants if they supply a letter from their parents confirming they are living there rent-free. This is particularly helpful for borrowers who will remain living at home and rent out the property they buy.

Tips to help get your home loan approved

Here are a few tips to help you boost your chances of getting your loan approved:

• Save as much as you can – the bigger the deposit the better.
• Clean up your spending in the lead-up to applying for a loan. Stick to a budget and limit any non-essential spending.
• Reduce your outstanding debts as much as possible or consider consolidating personal debts into the home loan that you’re applying for.
• Cancel any credit cards you don’t use, or at the very least reduce the credit limits, as that can boost your borrowing power.
• Get a copy of your credit file to make sure there are no black marks you’re not aware of that could hurt your chances of your application being approved.
• Find a lender that favours your circumstances. For instance, casual, contract and full-time employment are treated differently by different lenders.
• Consider using a mortgage broker. Not only can they help you find a loan that suits you and do most of the hard work but another big plus is that they know the ins and outs of the industry and may be able to suggest a lender more likely to say yes.

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