In the lending serviceability process, not even your dinner is safe from scrutiny.
“Personal spending habits on things like clothes, holidays, and takeaway food are becoming a factor when a bank considers a loan application,” said Craig Gemmill, the managing director of Perth-based home builder Gemmill Homes.
“Increased scrutiny into the banking industry and tighter controls on lending means obtaining finance is becoming an issue for prospective home owners,” Gemmill said. “The banks are still lending money, but it’s much tighter.”
According to him, it’s the first, second, and third home buyers who can’t get the funds. Before, banks would work out a multiple of one’s income, subtracting significant repayments, such as car debts and credit card vulnerabilities. Banks are now looking at bank statements to see how often orders Uber Eats.
“APRA want increased security on the amount the banks are lending to home owners, so the balance has shifted. The banks haven’t changed their guidelines, but they are just applying them far more stringently now,” he said.
Protect customers from credit problems
Gemmill came up with five simple steps to help Australians avoid running into credit problems.
According to him, the process isn’t simple anymore, with technology changing the game. As people use cash less, everything can be tracked with credit cards. He advises those looking to apply for a loan to make informed decisions before making a purchase, keeping in mind that someone is watching them. “Understand that everything you do is going to come under more scrutiny,” Gemmill said.
These suggestions might help brokers’ customers increase their chances of getting a home loan.
When visiting your broker, bring as much information as possible. This includes discretionary income, expenditures, and other costs.
It would be good to work on minimising needless spending in the months prior to applying, because once issues are found in the credit application, they will be difficult to overcome. Keeping your Uber Eats purchases in check could have a considerable impact on one’s chances of approval.
Since July 2018, banks and brokers can now receive their customer’s personalised credit file, which provides more information about their repayment history and debts. Any customer who’s a day late on his or her credit card will be reported.
Remember that all digital transactions are being tracked and some purchases could come back to haunt come application time.
Credit schemes like Afterpay and Zip Pay are categorised as debt, viewed in the say way as credit cards. Similarly, missed payments and interest charges on them could potentially be viewed as default.
Gemmill said people can’t do much about problems arising after applying for a home loan or during credit check, but they can be better organised and make small changes before applying.
“If you’re a day late paying your credit card, if you overdraw your account, that is all reported and that affects your credit score,” Gemmill said.
“Simple changes can make a huge difference. If owning a home is important to you, make it the priority.”