Ticketek & pets can cost you a loan

It can be tough get­ting a mort­gage these days, so take the knife to those liv­ing ex­penses

Money Magazine Australia - - CONTENTS -

Re­spon­si­ble lend­ing or just plain an­noy­ing? In a re­cent home loan ap­pli­ca­tion, the lender iden­ti­fied a $59 pur­chase the ap­pli­cant had made at a pet store. The lender went back to the bro­ker and ques­tioned why the ap­pli­cant had made a pur­chase at a pet store but in their loan ap­pli­ca­tion did not re­veal they had a pet.

What the lender did not know is that the ap­pli­cant had pur­chased a gift at the pet store and did not ac­tu­ally own any pets. The lender then re­quested a fur­ther 60 days' his­tory of that ap­pli­cant's ac­counts be­fore ap­prov­ing their home loan.

It's hard to be­lieve but, ac­cord­ing to Aus­tralia's largest mort­gage bro­ker, Mort­gage Choice, this is just one of many ex­am­ples of how hard it is to get a home loan now.

If there is one thing that we have learnt from the royal com­mis­sion into mis­con­duct in the bank­ing, su­per­an­nu­a­tion and fi­nan­cial ser­vices in­dus­try it is that banks haven't been too good at as­sess­ing our ex­penses and, if we're to be hon­est, some of us haven't been that good ei­ther.

Now the bru­tal con­se­quences of poor lend­ing prac­tices are be­ing felt, as more and more house­holds are ei­ther at risk of hav­ing their home loan ap­pli­ca­tion re­jected or be­ing held pris­oner in their own mort­gage as tighter lend­ing re­stric­tions are pre­vent­ing them from re­fi­nanc­ing to a bet­ter deal.

“We have seen the lend­ing en­vi­ron­ment change sig­nif­i­cantly over the last 12 months, and with the royal com­mis­sion's fi­nal re­port due in Fe­bru­ary, it is pos­si­ble more change is on the hori­zon,” says Su­san Mitchell, chief ex­ec­u­tive of­fi­cer of Mort­gage Choice. “They are foren­si­cally go­ing through liv­ing ex­penses to make sure they are truly re­flec­tive of what the bank state­ments say.”

When it comes to as­sess­ing home loans, lenders still look at se­cu­rity and ser­vice­abil­ity – so this hasn't changed.

On the se­cu­rity side, the lower your lend­ing val­u­a­tion ra­tio (LVR) the bet­ter. What you buy and where you buy it mat­ters.

As for ser­vice­abil­ity, the stronger the ap­pli­ca­tion the bet­ter. How much you earn and what you spend are im­por­tant. While there's noth­ing new here, what is dif­fer­ent is how lenders as­sess your ex­penses. In the past they may have re­lied on ei­ther the house­hold ex­pen­di­ture method (HEM) or the Hen­der­son poverty in­dex to guide them on cal­cu­lat­ing ap­pli­cants' liv­ing ex­penses. While they haven't ditched these bench­marks, they aren't solely de­pend­ing on them ei­ther.

Ac­cord­ing to Mort­gage Choice, there are as many as 15 liv­ing ex­penses that lenders now closely scru­ti­nise. Items in­clude the usual sus­pects like gro­ceries, cloth­ing and per­sonal care but new spend­ing tempters such as Uber, De­liv­eroo, Net­flix and After­pay are also on their hit list. If one of these items pops up in your dig­i­tal foot­print, it could prompt your lender to re­quest a “please ex­plain”.

“Even your din­ner choice can have an im­pact on your fu­ture lend­ing po­ten­tial,” says Craig Gem­mill, manag­ing di­rec­tor at Gem­mill Homes. “The banks are still lend­ing money but it's much tighter. It's across the board – it's first, sec­ond and third home buy­ers.”

So how do you get around this? Ac­cord­ing to Mort­gage Choice's Mitchell, you

need to act like a lender. “Print out your bank state­ments for the last three months [some lenders may ask to see up to six months of liv­ing ex­penses] and high­light any ex­penses you can’t im­me­di­ately ex­plain,” says Mitchell. “This will give you the op­por­tu­nity to get fi­nan­cially fit and ad­dress any spend­ing be­hav­iours which might de­crease your chances of se­cur­ing a loan.”

To avoid the temp­ta­tion, it may be worth delet­ing any con­ve­nience apps while you are on this fi­nan­cial detox. Re­duc­ing credit card lim­its and get­ting rid of store ac­counts can all help in­crease your bor­row­ing power.

It may even be worth visit­ing a mort­gage bro­ker to help you find a lender that suits your per­sonal cir­cum­stances.

“As credit poli­cies tighten, bro­kers pro­vide in­depth knowl­edge of com­plex loan writ­ing re­quire­ments,” says Mitchell.

Be sure, though, to do your own re­search on home loans be­fore see­ing any bro­ker or lender. This way you are in the driver’s seat when it comes to mak­ing the fi­nal de­ci­sion.

Gem­mill says it’s a case of be­ing or­gan­ised – “go to the bank with as much in­for­ma­tion as pos­si­ble” – and min­imis­ing your ex­penses.

“Tech­nol­ogy says it all! Ev­ery one of your trans­ac­tions is be­ing tracked and it could come back to haunt you come ap­pli­ca­tion time. You may re­gret the $300 you spent on clothes.”

Fi­nance ex­pert and au­thor of The Great $20 Ad­ven­ture, Money’s edi­tor Effie Za­hos ap­pears reg­u­larly on TV and ra­dio. She started her ca­reer in bank­ing.

“Ev­ery one of your trans­ac­tions is be­ing tracked and it could come back to haunt you”

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