Home buyers face longer wait for loan approval

Hopeful homeowners are being forced to wait up to seven weeks to receive lending approval, mortgage brokers say.

Mortgage Choice CEO Susan Mitchell. Picture: John Feder

Hopeful homeowners are being forced to wait up to seven weeks to receive lending approval as mortgage brokers and buyer agents report financial scrutiny is back to post-royal commission levels.

Instances of buyers being asked to justify their recent annual leave and provide pay slips on settlement day to prove they are still employed have been reported in the face of rising unemployment and job uncertainty.

“The income testing is getting harder,” said Sydney buyer’s agent John Carew. “The banks are doing more of a forensic review of pay slips.”

The scrutiny is being coupled with high levels of home loan inquiries from new and existing customers is creating a backlog.

Mortgage Choice CEO Susan Mitchell has noted the rising demand for repayment relief as a symptom of coronavirus job losses and stress, refinancing to capitalise on low interest rates and a “flight to quality” away from smaller lenders to the big four which can be used to justify for the timeline blowouts within some institutions.

“The time it would take to actually look at a file has been vastly extended over the past couple of months,” Ms Mitchell said.

“Except for the institutions that have really invested in their systems, the ones that are having issues can be up to 15 (business) days to pick up a file for a new loan and 30 days for a refinance.”

ANZ has one of the lengthiest waiting times, averaging 30 business days from application. In a note to brokers earlier this month, the lender said more than 100 staff had been employed to relieve pipeline pressure.

“We understand that our current home loan application assessment times are causing frustration for brokers, lenders and customers,” the note read. “Recent application volumes are unprecedented and have exceeded all expectations.”

No clarity was given to when approval times would return to normal.

Commonwealth Bank, Westpac and NAB each said they had experienced no increase in wait times through the crisis, but some brokers disagreed.

Mr Carew has seen instances of clients being forced to justify whether their recent annual leave was forced or discretionary to ascertain their employment prospects.

“Pre-COVID, if you were working at an ASX-listed company, that was enough. But now even that is under security,” he said.

“From a buyer’s point of view, unless you have finance ready to go, you can’t really move. Agents know it is taking a long time to get finance and they aren’t interested with a maybe.”

The extended timelines have caused some headaches for buyers given the low supply in the marketplace creating competition among buyers. Melbourne buyers advocate Wendy Chamberlain said there had been a rise in the number of finance clauses being written into settlement contracts, with many buyers forced to ask for extensions.

“It doesn’t matter who it (the lender) is, you have to factor finance into settlement. In the current environment, vendors are having to realise people want finance clauses. There is a bit of argy-bargy out there between buyers and sellers”

Timelines also play a factor into the federal government’s $668m HomeBuilder stimulus package.

The framework stipulates a three month turnaround from the signing of a contract to the start of construction to be eligible for the $25,000 grant. Clarification on Friday offered states the ability to offer some leeway to allow more time to gain loan and legal approvals and access state-based grants.

Ms Mitchell said this would likely place more pressure on lenders as more loan applications were filed. “It is an attractive offer if you qualify, especially for a first homebuyer. In some of the states like WA and NT, the first-home buyers grant plus the HomeBuilder is over $50k,” she said.

“The issue with HomeBuilder is the time is quite short to find a land and building package, sign the contract and start the property. If that time is quite short, you are losing it waiting at the bank. The queues at the bank are going to cause issues with HomeBuilder.”