With higher interest rates and inflation squeezing the budgets of many households and entrapping them in their current mortgage due to lack of equity and serviceability to refinance, Barry Saoud, Pepper Money’s general manager mortgages and commercial, revealed some tips on how brokers can help their borrowers increase their serviceability.
“In times of uncertainty, borrowers need extra support to help them navigate,” Saoud said. “Additional policy levers are required to deliver on this. By providing options on length of term and capping repayments as we have here at Pepper Money, brokers are able to give these customers the bridging relief they need to get through these times.
The mortgage leader said the key driver here is to keep customers in their homes, “by offering help in [a] pragmatic and real-life way.”
“The Pepper Money view on this market is that for some people in certain situations, what they need is a temporary solution, offering the support they need until the environment stabilises or until the client’s circumstances improve,” Saoud said.
So, how can brokers help clients increase their serviceability? Saoud identified five ways how.
1. Income: Higher income directly improves serviceability. Brokers should proactively speak with their clients about exploring opportunities for salary increases, bonuses, promotions, or additional income streams such as part-time work or freelance gigs. They should consider all income streams, even such things as Centrelink payments.
2. Lowering existing debt: Reducing existing debt obligations can improve serviceability. Brokers can assist their clients into focusing on paying off high-interest debts or consolidating multiple debts into a single loan. It’s advisable for clients to just have one ongoing repayment to manage each month, to help save them time and money, instead of repaying individual debts with different interest rates and fees for mortgages, cars, credit cards, personal loans and even phone bills.
3. Extend the loan term: By stretching the loan term, clients can reduce their monthly repayments, making them more manageable. It’s important to take note though that the longer the loan term, the higher overall interest costs can be. Urge your clients to pay more than the minimum repayments when they are in a better situation to potentially reduce the extra interest cost, or to refinance.
4. Consider a co-borrower: Clients can raise their serviceability by having a co-borrower with a strong financial position. Both the applicants’ income and assets will collectively be considered when assessing the borrower’s ability to repay the loan. Because both borrowers have equal responsibility to meet the repayments, this will assist with the loan serviceability. Both applicants’ loan suitability and capacity to pay for the loan repayments will need to be assessed.
5. Give it the non-bank test: Saoud said Pepper Money has “the flexibility to make lending for all kinds of real-life situations possible.” The non-bank is passionate about providing those who are doing it toughest with the complex specialist lending solutions they need. The lender is constantly uncovering “yeses” when there are “nos,” and keeps testing the boundaries.
“Remember that each borrower's circumstances are unique, and it's important to consider the long-term implications of any changes to serviceability,” he said. “It's advisable to seek professional advice and thoroughly evaluate the potential impact before implementing any strategies.
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