Home Loan After Redundancy or on Probation: Can You?

Yes, you can often get a home loan after redundancy or while on probation, but lenders treat both as higher risk, and policies differ a lot between them. A redundancy payout can help your deposit and savings, but it is generally not counted as ongoing income.

This is general information only, not financial or credit advice. Check the policy of your own lender or a broker before you apply.

What lenders are really assessing

Lenders have to assess whether you can afford the loan without hardship, as Moneysmart explains in its loan rejection guide. They do that by looking at income that is likely to continue, not the cash you have received. In my experience, this is where redundancy and probation applications get complicated: the lender is trying to judge how secure your income will be over the next few years, and a recent job change makes that harder to judge.

That means two different questions get asked. First, is the income from your current job stable enough to count? Second, does the money you hold (savings, a payout) help your position some other way?

How a redundancy payout is treated

A payout is a one-off amount. Most lenders will not treat it as repeatable income when working out what you can borrow, although how they treat it can vary. What it can do is show up as genuine savings, which can support a larger deposit or a buffer.

The tax treatment is worth understanding because it affects how much you actually keep. According to the Australian Taxation Office (ATO), genuine redundancy payments are tax-free up to a limit based on your years of service, and the limit is indexed each 1 July. Any amount above that limit is treated as an employment termination payment. The ATO also says unused annual leave, leave loading and unused long service leave paid on termination are not part of the genuine redundancy payment. I have not quoted the current dollar limit here; check the ATO page for it, and ask your employer or accountant what applies to you.

What happens when you start a new job

Many lenders want to see some time in the new role before they treat the income as ongoing. The probation period itself, and how long you have been in the job, can matter. How long they want, and whether they accept a signed employment contract in the meantime, differs between lenders. Some are strict about probation and others are more flexible, so I would not rely on any single rule of thumb.

Things that generally help your case:

• Continuity in the same industry or a similar role, rather than a complete change of career.
• An employment contract and recent payslips from the new employer.
• Evidence of your previous employment history, such as payslips or a termination letter.
• Permanent full-time employment, as opposed to casual or contract work, although lenders also differ on how they assess those arrangements.

If you are between jobs with no income at all, the position is much harder, because there is no current income to assess. If you already have a home loan and are struggling after losing a job, Moneysmart says all lenders have hardship teams and that talking to them early gives you more options.

How your payout can still strengthen an application

Put simply, a bigger deposit lowers the loan-to-value ratio (LVR), which is the loan amount as a percentage of the property value. Illustrative example only: on a $600,000 purchase, a $60,000 deposit means a $540,000 loan, so the LVR is 540,000 / 600,000 = 90%. If you add $30,000 of savings, the deposit becomes $90,000, the loan is $510,000, and the LVR is 510,000 / 600,000 = 85%. A lower LVR can widen your lender choice and may reduce costs, though lenders set their own rules on this.

Keep in mind that a lender will also want to see where the deposit came from, and cash that sits in your account for a period usually looks stronger than money that has just arrived.

What to do next

• Check what your payout is made up of, and what the ATO says about the tax on it, before you plan around the figure.
• Ask two or three lenders, or a broker, how they treat probation and recently changed jobs. Policies differ, so one decline is not the end.
• Gather your payslips, employment contract and termination paperwork in one place.
• Consider waiting until you have more time in the new role if you do not need to buy straight away.
• Avoid lodging multiple applications in a short time, because Moneysmart notes that too many applications can lower your credit score.

Related Reading

• Home Lending & Property Glossary
• Riverina Property: Why Regional Serviceability Rules Catch Buyers Out
• What Actually Happens to Your Repayments When the RBA Moves

Written by Michael Wignall, who’s spent 30+ years in banking and home lending across the ACT, Illawarra, and Riverina regions of NSW.

More on this topic is collected in the Finance Strategies for Australians hub.

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Written by Michael Wignall, Lending Area Manager with 30+ years in banking and home lending across the ACT, Illawarra, and Riverina. Got a question or an idea for a post? Get in touch.