Tightening Qualifying Criteria – Borrowers Beware…
With the introduction of the responsible lending framework set down by ASIC and APRA post the Royal Commission, we have seen a rise in frustration from borrowers due to the increased information being requested from lenders and the longer turn-around times of the required verification procedures eg verifying information provided by the borrowers to verify their living costs (even though it seems many lenders just revert to the classic HEMS Test or ‘Household Expenditure Model’ set out by the government to assess if the proposed new loan meets with the qualifying criteria set out by the regulators….)
Let’s expand with an example……
For the last two months you have spent around $260 per month at the supermarket, $60 per month at the food market, $90 per month at the local grocer for incidentals which adds up to around $410 pm for groceries. Yet prior to that, your parents came over for a couple of weeks to visit and you spent $470 at the supermarket, $110 at the market and $120 at the local grocer, so your groceries bill came to around $700 for the month, not to mention you have spent an extra $80 in fuel driving them around, taking them to the theatre, and even dinner a couple of times. All up you have spent an extra $300 on groceries, $80 on fuel and another $900 hosting your parents. So, after submitting your application, the lender advises your actual living expenses are $1280 a month more than what you have declared, and as a result your income isn’t sufficient to support the loan request - they subsequently decline your application!
Confused and annoyed? Thank the Royal Commission boffins……
What to be aware of
Living expenses currently seem to be the most scrutinised cost items in today’s lending space. The regulators make the rules and if the lenders don’t follow these rules, they impose very heavy penalties. Even if a borrower can demonstrate very humble living costs, the lenders will ignore this and refer to the average living expenses under the HEM’s model. A temporary situation of increased house-hold expenses such as in the example above is also likely to be taken as ‘the norm’ in regards to your living expenditure.
Also, be aware that regular ‘ride -share’ payment transactions showing up in your bank statements e.g. – Uber will not be looked upon favourably by most lenders and this has been a significant factor of many declines of late. Popular ‘pay later’ facilities such as Zip Pay and After Pay are actual credit facilities, considered no different to a credit card and lenders treat them as a liability. Finally, don’t withdraw cash from an ATM anywhere near a gambling facility as this will surely raise questions as to your spending or recreational habits!
So, what to do?
If your intention is to apply for a home loan some time soon, or even a car loan etc. then you need to be aware that apart from the stock-standard information/documentation you will have to supply e.g. recent pay-slips, you will also be required to provide the last three months transactions of your bank and credit card accounts so that the lender can verify the information you are declaring related to your living expenses. You will also need to declare and provide statements related to any other loans facilities or debts you may be paying off, including lines of credit.
Please feel free to give me a call on 0438 041 111 to organise a confidential discussion about your home loan position and how we may be able to help.
As always, enjoy life, work hard, play safe and remember that we are always here to help you
‘Take the Confusion Out of Lending’
All the Best
Peter Vinci - 0438 041 111