Exit strategy

Where an applicant is approaching retirement age, care must be taken in assessing whether the applicant can continue to meet their loan obligations beyond retirement without undue hardship. This requires applicants to detail a reasonable exit strategy on how they’ll either repay the loan at retirement and/or how they can service the proposed loan over a reduced term. 

An exit strategy is required where: 

• the income required to service the loan is earned by your client that is 50 years or older at the time of application, and  
• they either intend to retire or will be 70 years or older prior to loan term maturity. 

This section outlines scenarios to assist you in assessing whether your client will need an exit strategy.

The following principles are used when assessing downsizing exit strategy:  

• The property intended to be purchased is assessed at current market value.
• The applicant needs to be able to purchase the new property and extinguish all debt on the existing property.
• The loan size can be assessed at the amortised value at the point in time they intend to downsize, based on minimum contractual repayments.
• No capital growth should be assumed in the property they are selling.
• Care is required where the loan is secured by an owner-occupied property which is the applicant’s main asset.
• The plan is is detailed including the above and showing timeframes, purchase price and location, and aligns with the applicant’s requirements and objectives.