BORROWING CAPACITY

PLACING a bet or having a pay-later shopping account, or credit card, are some of the everyday indulgences that can drag down your borrowing capacity.

And many are unaware of their potential impact, which experts say is “crunching buyers”.

So we asked those in the know what borrowers should watch out for, and how they can improve their chances of scoring a loan.

Pay-later shopping schemes like Afterpay, betting accounts and regular ordering on takeaway food apps can be red flags when it comes to borrowing capacity, according to Infinity Group chief executive Graeme Holm.

And while he is not saying ditch the takeaway in full, Mr Holm advises buyers to consider “no more caramel lattes” and to cut back on unnecessary spending where possible.

“Work out what you need for your wine or beer on a Friday night, or date night on a Thursday, (and save the rest),” he said.

Mr Holm warned many loan applicants failed to disclose everyday costs such as living expenses and small but accumulative spendings.

“Gambling and Uber Eats are a big one,” he said.

“Banks are using actual living expenses since the royal commission. They will scrape every statement of every account, they will add up everything you’re spending on.

“Last financial year, about 53 per cent of our applications for people under 35 were being system declined by undisclosed living expenses.”

He said credit cards were also potentially “detrimental”, noting wouldbe buyers were judged on “whatever the limit is”, not what they actually spent.

“If you have a $10,000 credit card limit, you could max it out tomorrow,” Mr Holm said. “That really hinders borrowing capacity.

“In 80-90 per cent of the loans I’m approving, the banks are suggesting reducing the credit card limit or closing the credit card.”

Household bills and automatic subscriptions, including easy-prep food boxes like Hello Fresh, phone contracts and magazines are also examined.

Masters Broker Group broker and business coach Mario Borg said personal loans, such as car loans or leases and university debts, were heavily scrutinised when someone applied for a home loan.

“The banks do a forensic investigation into your expenses through your bank account,” Mr Borg said. “Even if you pay it off every month, they use the limit and assume you have full access.

“The more debt you have, the less the borrowing capacity is.”

Type of employment was another potential downfall, he said.

“For example, casual or contract employment is not seen as stable or robust,” Mr Borg said.

“And, of course, you have your selfemployed borrowers who are judged on the last two years.

“They might look at their bank balance and think they’re doing OK – but it’s about profit.”

People thinking about buying and borrowing needed to do their homework and “get your ducks in a row” before applying, Mr Holm said.

“We always talk about preparation for application – it’s almost like training for a race,” he said.

“Reduce credit limits, make sure you have no overdue payments, take your lunch and don’t buy it for a few months. Have a spending detox.

“People think budgeting is a dirty word, but it’s you telling your money where to go and when.”

And with many banks taking up to two months to approve a loan, Mr Holm said buyers needed to be “financially fit” when they applied.

“If it takes two months to get your loan assessed and if you’re missing one bit of