Losing your job or even changing jobs can be stressful, having to apply for a mortgage at the same time especially given the changes in the market can just add to that stress.
So how do we overcome this?
Well the answer isn’t as simple as we would like, but the most important thing to consider is before you commit to the purchase. Only with this in mind will you be able to confidently face losing your job.
Hey, guys. Property Search… Think Gladfish. I’m Brett Alegre-Wood and this is Property Rant.
So, this is a great question today because it’s one of the fears that come up quite a bit, especially if you’re employed. Not so much self-employed people we don’t really see this question come up so much. But what happens if they buy a property and prior to completion, they lose their job and they’re going to struggle to get a mortgage?
Now, let’s have a look at this. Because one of the things we do… And this is, actually, a scenario that we run in our portfolio management side of things when we do reviews. Which is, if you lost your job, how long is it going to take to get another job? And at what of the original pay would you get it? And what we do is we say, “Listen. What if you’re unemployed for three months, and your pay after that drops 30%?” So you’re going to have 70% of what the original was, and you have three months to fund it. If you can cover that in your portfolio, then, generally, that’s good for your portfolio. That’s where you should be working to at least.
So, that’s there. So, when we’re building a portfolio, keep that in mind. So, if you’re buying two, three, four properties, and all of a sudden now if I lose my job, I’m not going to be able to survive next month, then you’re probably building too quickly. You need to build up a bit more savings, a bit more equity, and things like that.
So, that’s the first thing. Now, practically, what do you do? Look, if you haven’t got a mortgage, it is going to be very hard… No. If you haven’t got a job, it’s going to be very hard to get a mortgage. Especially today. They’ve really tightened down on things. But what you really need is three to six months, and probably more on the six months now, of pay slips with an employee. Now, if you change jobs and it’s within the same industry, then, generally, they go, “You know what? You were just changing jobs. You’re probably fine.” But just be aware that if you bought something and now you’re going to make a major life change and go, “I used to be a professional, and now I’m going to be a life coach and self-employed.” Well, just be aware that self-employed, you’re going to need probably two years of accounts.
So, be aware of these things before you invest. And if you’re not sure, when you talk to the property consultant, then make sure you raise these issues with them. “You know, hi, I’m thinking about leaving, and I’m going to go become a… You know, I’m going to go on a yoga retreat for two years.” Well, maybe now’s not the time to be buying a property for that.
But there are plenty of lenders that will still lend. There’s plenty of options. And, actually, those options are opening up. The big major difference now is that the loan to value has dropped considerably. So you’ve got to put more of a deposit in, which means it slows down the rate that you can build your portfolio. And that’s the real big difference.
There’s still people lending for people who haven’t been at a job for very long, and people who haven’t, you know… All this sort of stuff. That still goes on. It’s just you’ve got to put more of a deposit in. So, now, whereas before you get 80%, even 90% at one stage in the market for buys/lets, now you probably get 75%, 70%, 60%, even down as low as 50%. You know? 50% is probably the lowest. That slows down the rate that you can build considerably.
But, look, if you lose your job, the best thing to do is as soon as you do that, then make sure you call the team. Speak to them about what you can do. Speak to your broker about how you can go about making sure you get that mortgage. And it may be a case that, if worse comes to worst, you have to assign that contract on and resell it if you can’t complete.
Otherwise, if you’ve got a partner with an income and they maintain their income, there’s plenty of ways around it. So don’t despair. But get on top of it early is one of the key things to make sure you don’t stress about it and don’t worry about it. And you actually get the investment that you originally bought. All right, guys.
Have a great day. Live with passion.