Employment History

FAnother vital aspect of the assessment process is the applicant’s employment history. What the bank wants to confirm is that the applicant is relatively stable in their employment because this is a good indicator that income will also be stable.

The general policy is as follows:

In order to satisfy the employment requirements and applicant must be a permanent full-time employee or a contracted PAYG employee and have been with the same employer for a minimum of six months, and 12 months continuous employment in the same industry.

Any probationary period in the current position will also have to be completed before the applicant will be considered for a loan.

Many first-time borrowers are bemused by this criterion because in uncertain economic climates it could be argued that no one’s continued employment is assured irrespective of how long they have remained with one employer. By the same token however, banks rely upon their own experience and their experience shows that where a person has been continuously employed for a longer period of time it is a better indicator of workplace stability than a situation where the applicant jumps from job to job every six months.

In discussing the importance of employment history and the need for an applicant to demonstrate stability of for at least 12 months, it is also important to understand the impact of mortgage insurance.

In any case, the bottom line is, it's the bank's money and they can do whatever they like with it and they have every right to ask the questions they do.

As you will see elsewhere on this site, Mortgage Insurance is a vital element for every application where the loan to value ratio (LVR) is 80% or more. This means that every home loan that falls within this band will be insured by the bank to protect its interests. Remember, the insurance policy has to be paid by the borrower and is designed to protect the bank not the borrower.

The overriding importance of this fact is that mortgage insurance companies have a large say in determining the bank’s lending policy and when it comes to employment history, mortgage insurance companies have generally laid down the law. This means that the bank has to conform to the mortgage insurance company's policies and that is why they take such a hard line.

How do you prove continuity of employment?

Every borrower needs to provide evidence of continuous employment, usually with:

A copy of the most recent two years payment summaries and the most recent two payslips.

In some cases the bank will phone the employer to verify the employment status and the length of time a person has been employed.

In cases where an applicant has had several employers over the short-term whilst remaining within the same industry or profession, the banks will still expect an explanation as to why so many employers appear on the application form. As a general rule, if an applicant has been ‘headhunted’ or has changed employers to move to better paid positions, evidence will need to be provided to allay the bank's concerns.

This simply means that changing jobs can have a negative impact on an application but not in every case.

Copyright © 2010 - Homeloans Central. All rights reserved. Web Design & SEO by Web Profits.