5.7 Employment and Income
The following employment criteria are to be observed when assessing applications:
5.7.1 Acceptable Employment Status
| Permanent salary/wage employment (full-time or part-time) and Contract employment | - Minimum 2 years continuous employment in the same industry, or
- Minimum 12 months with current employer
- Where the borrower is within a probation period, application may be considered based on the merits and strength of the borrower's overall position.
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| Casual | - Minimum 12 months in current employment
- Where the borrower's only source of income is from casual employment, application may be considered based on the merits and strength of the borrower's overall position
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| Self-Employed | - At least 2 financial years trading in the current business
Note: Where a borrower only has 12 months trading in the current business and 2 years in previous employment within similar occupation/field, the application may be considered by Genworth as an exception, based on the borrower's self employment circumstances and the overall strength of the proposal. |
| Second Job | - Minimum 12 months in current employment.
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5.7.2 Forms of Acceptable Income
| Salary and wages | - 100% accepted if length of employment criteria is met
- Note: Where a borrower is on maternity leave, 50% of paid income is acceptable. In cases where the maternity leave pay period has ceased or where no maternity leave payment is being received, no income allowance can be used.
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| Overtime | - 100% may be used to assist in serviceability if payment is regular and can be confirmed in writing as a condition of employment. If written confirmation is not available, evidence of overtime over past 2 years will be required.
- Where borrowers' employment is in the Essential Services industry (eg Ambulance, Police Service, Nursing, etc) written confirmation is not required.
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| Shift allowance | - 100% may be used only if it is a condition of employment and is an industry standard.
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| Rental income | - 80% of gross rental income to be added to gross salary/wage income (50% of gross rental income accepted for high density and/or inner city apartments. Refer to section 5.8.9 High Density Apartments for further details)
- Tax deductible investment loan interest may be added back to net income (after tax)
- Where a significant portion of a borrower's income is derived from rental income, and the proposal is heavily reliant on that amount to meet servicing requirements, the application may be considered too rent reliant.
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| Investment income (interest dividends) | - 80% of income as demonstrated in tax returns - income level must be evidenced over the past 2 years.
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| Social Security benefits/Government Pension | - 100% accepted where it is considered permanent for the next five years (unemployment benefit/sickness benefits are not acceptable).
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| Car allowance | - 100% may be added to gross taxable income.
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| Fully maintained company car | - $5,000 pa may be added to gross taxable income.
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| Child Suppoort/child maintenance | - 100% accepted if the maintenance agreement is registered with the Child Support Agency
- Six months consistent payments can be evidenced via the borrower's bank account statements and
- It is considered permanent for the next five years.
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| Self-Employed | - Borrowers must produce the last 2 years business and personal tax returns. Income evidence must demonstrate consistent income levels for the years under review, however, it would not be unrealistic for each year to reflect an increase up to 20% in the net profit. Where taxable income has increased over the last two years by less than or equal to 20%, then the latest year's income is to be used. Where taxable income has increased over the last two years by more than 20%, then maximum of 120% of the previous year's income must be used
- Business depreciation up to a total amount not exceeding 20% of business net profit may be added back to after-tax income for servicing calculations
- Superannuation contributions in excess of the compulsory 9% of gross annual income may be added back to taxable income.
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5.7.3 Income Exclusion
The following income sources are not acceptable:
- Workers Compensation
- Income from boarders
- All other forms of income not specified as per section 5.7.1 Forms of Acceptable Income.
5.7.4 Serviceability
- Genworth uses an NDI method to assess the risk related to a borrower's ability to meet regular fixed commitments
- Using the Genworth Servicing Calculator, proposed debt repayments (except those with a fixed interest rate for 5 years or more) are calculated at the average standard variable rate of the four major banks or the Lender's standard variable rate (whichever is the higher) plus an interest rate buffer of an additional 1.5% to cover interest rate movements and/or unexpected expenses. If the fixed rate term is 5 years or greater, the actual interest rate can be used to demonstrate servicing (i.e. the additional 1.5% buffer is not required)
- The cost of living is also an important component of the Genworth Servicing Calculator. Living costs differ from individual to individual depending upon many factors including marital status, dependants and household income level. Genworth use the Henderson Poverty Index (HPI) as a baseline cost of living. The HPI includes allowance for cost of food, clothing, single motor vehicle costs, rates, insurances, property maintenance/repairs, telephone, gas, electricity, transport, fares, entertainment and basic education. It is the Lender's responsibility to identify the applicant/s additional (discretionary) living expenses and to record each amount accordingly. Examples of other expenses are private school fees, additional motor vehicle expenses, Pay TV, Mobile phone expenses, Gym or other memberships. It is expected that the Lender understands the living costs of each individual borrower and completes the Discretionary Living Expenses tab on the calculator
- To meet Genworth's servicing requirements the NDI ratio must be at least 1.00:1, which means the Net Disposable Income (after tax and assessed living costs) must be at least 100% of total fixed commitments
- If you do not have a copy of the Genworth Servicing Calculator, please contact your local Genworth Relationship Manager for a copy, or download the calculator from genworth.com.au.
Refer to section 5.4.2 Trustee/s of a Self Managed Superannuation Fund for special requirements in relation to acceptable income for the assessment of serviceability of loans to SMSF Trustees.
5.7.5 Single Borrower with Non-applicant Spouse
- For a married person who is the sole applicant on a loan, the Genworth notional living costs for a couple will be applied unless independent income for the non applicant spouse can be evidenced by the most recent pay slip.
5.7.6 Joint Income/Joint Commitments
- Where the borrowers have existing joint commitments with parties who are not included in the loan application, 100% of the existing commitment is to be used in calculating serviceability for the new loan
- If the borrowers share a positive income source such as rental income with parties not included in the subject transaction, the borrower's tax return or certificate of title is to be used to ascertain the percentage of ownership. The percentage of ownership will then be applied to the gross joint income, to determine the amount used in calculating serviceability for the new loan.
5.7.7 Allowable Add-backs
For Self-Employed borrowers or companies, there may be some expense items that can be added back to net income for the purposes of assessing debt serviceability. There are:
- Income/salaries of directors (where not already included in income calculations)
- Interest paid on debt being refinanced
- Business depreciation (not exceeding 20% of business taxable income)
- Superannuation contributions in excess of the compulsory 9% of gross annual income
- Non-recurring expenses (confirmation from borrowers accountant required).
5.7.8 Notional Rental Expense
Where the borrower is purchasing an investment property, and is said to reside with family or friends either rent-free or at an unusually low cost, a notional rental expense of $150.00 per week ($650 per month) per applicant may, at Genworth's discretion, be included as an existing commitment when determining serviceability.
The notional rent expense will not apply to loans for the acquisition of vacant land.