First-home buyers and mortgagors looking to get a loan or refinancing should put their finances in order before making career changes, brokers have advised.
Chris Foster-Ramsay, Foster Ramsay Finance director, said lenders were most concerned about career changes, as these increased the risk of defaulting on a loan.
“It would be unwise to be looking for finance approval or to buy and purchase a home if you’re changing job roles in one way or another,” Foster-Ramsay told The Sydney Morning Herald.
Stephen Tuffley, Seek director of sales and service, said the start of the year was the busiest period for changing jobs.
“Near the end of January and February is actually the peak time for candidates looking on our sites,” Tuffley said.
According to Seek data, nearly three quarters of Australians were open to changing careers at some point, especially so for young Australians, Tuffley said.
To approve a new loan or refinancing, lenders usually require up to three cycles of payslips, or more for casuals.
“If your job is not permanent as in contracting, casual, part-time, then generally you’ll need three to six months history with that employer before a bank will be willing to lend to you,” said Will Unkles, 40 Forty Finance director.
Stretches of unemployment were often a cause for concern for lenders, Unkles said.
“They want to make sure there’s a short gap between both jobs,” he said. “The general rule of thumb is 28 days. Most lenders won’t have any issue with that even if you’re on probation.”
Clinton Waters, AXTON Finance principal mortgage broker, said the decisive factor when it came to how much scrutiny an application attracted was the size of the loan.
“The biggest function is how much equity you have in your property determines how much of a change that will be,” Waters said. “If you’ve lent 80% of the value of the property, it won’t affect your value to get a new loan or to refinance. If you’re 90% to 95% [leveraged], most lenders will require you to sit out a probationary period.”
Foster-Ramsay said most big lenders had become more lenient when it comes to showing a long period of payslips.
“Most majors with the exception of ANZ will take two to three pay cycles and an employment contract, ANZ still requires three months of salary credits,” he said. “They can be pretty liberal. Where it becomes more of an issue is if your borrowing capacity is right at the top of the tree.”
Using a second job to boost income is a common tactic that doesn’t always pay off, Foster-Ramsay said.
“If you’re looking to do that to qualify for a home loan right now, you can’t show the bank consistency of income,” he said. “[For example] if you’re working at Coles 25 hours a week but if you’re looking for extra borrowing capacity, so you take on extra hours at the pizza shop.”
Starting a small business could also affect the ability to get a loan.
“If you’ve started a business you need to show at least one full financial year of income, usually two,” Foster-Ramsay said. “So that can put you under a lot of pressure and you need a bigger deposit than a salaried position too.”
Refinancing was always easier for borrowers with a large deposit or with plenty of equity in their home, Water said.
“A lot of those people who have changed jobs and have the equity in that property and have borrowed under 80%, it’s not a problem to refinance if you’ve changed jobs,” he said.
As prices fall, however, those who had purchased at the peak with small deposits would struggle, Waters said.
“If you [were] a first home-buyer and you’ve changed jobs, you have a whole lot of headwinds,” he said.
Unkles advised those looking to refinance or buy a new home to stay with their old job until they had put their finances in order.
“For that reason, before they make a job change some will restructure their finances,” he told SMH. “You will have the most options for lenders, put it that way. [But] there is a lender who lends to everyone unless you are casual or on a contract.”
Have experience with clients changing jobs? Let us know in the comment section below.
