In the Australian mortgage market, the majority of lenders prefer borrowers who have been employed for a long period, as it shows they have a reliable, and stable, source of income. But that will not work for all borrowers as job hopping is becoming more and more common, particularly among the young, empowered Gen Y workers – also known as millennials – on the lookout for job satisfaction and career advancement.
With job hopping becoming more of an established trend than in decades past, it is crucial to understand how your career decisions might affect your ability to qualify for a mortgage, as well as what you can do to enhance your success rate.
How will a new job affect your ability to get a mortgage?
When assessing your eligibility for a home loan, lenders will take the following into consideration:
- How long have you been in your new job?
- How often do you change jobs?
- How long have you been in your current field or industry?
- Are you staying in the same industry or moving to a completely new industry?
- What is the likelihood of borrowers in your industry defaulting on repayments?
- What are your employment terms? (full-time, part-time, casual)
These factors influence a lender’s assessment of whether you are a risk, in terms of being a borrower. Even if you are moving to a job with a higher salary, lenders will still view this as a high risk. And even if you love your new job, there is a chance that it will not work out or be exactly what you initially expected. In other words, you may find yourself changing jobs again or having your employment terminated during your probation, which can affect your income. That is why most lenders prefer a stable employment history of at least one to two years.
Are there lenders who consider borrowers with a new job?
The good news is that not all lenders require borrowers to be more than a year in a job. In fact, many lenders understand that younger workers are in high demand, highly skilled and career opportunists who actively change jobs to seek better compensation or working conditions. They recognise that despite a short employment history, many individuals are in a strong financial position and have industry experience.
But it also depends on your circumstances. If you are an experienced professional with other sources of income, a strong asset portfolio, few liabilities, a strong credit score, high genuine savings and a stable employment history as far as many years of experience in your given field, lenders are more likely to make an exception to their lending criteria and grant you a home loan. If you are not an experienced professional, it is still possible for you to get a home loan. However, your choice of lenders may be limited, which can mean you may have to settle for a less competitive product.
Do lenders favour certain lines of work?
Major banks and other lenders usually prefer the following:
- Medical professionals
- Government employees
- Mining industry professionals
- Any other line of work which is in high demand
But what if you are a blue collar worker? Do not worry. In most cases, you can still qualify for a mortgage.
What if you are changing jobs?
Most lenders will not approve a loan for you while you are in the process of transitioning to your new job. However, there are a few major lenders with competitive interest rates who will consider approving your loan before you commence your new role.
Generally, lenders will be of one of two minds regarding a change in employment. If you can show stability with your prior employer/s, it's likely that you are likely moving to a new job to take advantage of better compensation or working conditions. If lenders believe that you were fired from your old job, or terminated during your probationary period, they will be less likely to approve your mortgage application.
Depending on the lender, they may require you to commence your new job prior to issuing formal approval for your loan. In some cases, if your income from your current job is sufficient to repay the loan, they might approve your loan on that basis.
How much can you borrow?
You can borrow up to 95% of the property value as long as you are in a strong financial position as well as meet all standard lender criteria (including having a clear credit history). However, if you are borrowing over 90% of the property value, the lender may ask more questions or require additional supporting documents before issuing their approval.
Will you pay a higher interest rate?
In most cases, you will pay the same interest rate on your loan as with those who are not in their probationary period anymore. In other words, the interest rate of your mortgage is not typically affected.
How can you increase your chance of getting approved?
An unusual employment situation, such as being in a new job, is not always ideal when it comes to applying for a mortgage, but there are some things you can do to improve your chances of getting approved for a loan.
Review your credit file
Request a copy of your credit file and review your financial situation. This can help you understand how the lender will see you as a borrower so you can decide whether you need to improve your credit status or not. This also gives you a chance to make sure that there are no incorrect enquiries listed on your file.
Reduce existing debt
If you have several debts, such as personal loans or credit cards, you may want to consolidate these debts to benefit from a lower interest rate. However, due to the difference in loan terms, be careful about combining short-term debt and long-term debt.
Speak with a broker
Consult a mortgage broker near you to help you understand your home loan options and borrowing capacity. Mortgage brokers have expert knowledge of the mortgage industry, so they can guide you in finding a specialist lender that may be more likely to review your application.
Be precise with your employment details
Make sure you provide the required documentation and any supporting information. Providing as much detail as possible about your employment will help the lender assess your earning potential accurately. For instance, if your payslip shows a lower amount than your gross income, consider providing the lender with a group certificate or a bank statement for a more accurate picture of your salary.
Some tips for borrowers on probation
To help you secure your tenure in your new job, which can help you with your mortgage application, here are some things you can do:
Check your employment contract
It is common for almost all new jobs to have a three or six-month probation period, especially when you have made a career shift to a new industry. If you are not sure if your employment is subject to a period of probation, refer to your Australian Workplace Agreement, employment contract or contact your HR Department to confirm your employment status.
While you are in your probationary period, you can expect your manager to monitor your work closely, how well you get along with your team members and, if applicable, how you deal with customers. It may be a good idea to ask for a copy of your new company’s policies to help you adjust to the culture at your new workplace.
Why does your employment matter so much?
You may be wondering why most lenders are so conservative when it comes to borrowers’ employment status. They are very risk-averse and concerned that if you have not been in your job for a long period, then you have a higher chance of leaving your job or your employment terminated during your probation period. They want to practise responsible lending by lending only to borrowers who are in a strong financial position to service the loan. As your employment is a primary source of income, they need to assess your employment details, especially if your employment type makes you a high-risk applicant.
Some lenders are willing to reconsider their criteria and tailor their product to suit your circumstances. It is a matter of choosing the right lender.