Banks have been through the wringer of late with the continuing Royal Commission into the Banking, Superannuation and Financial Services Industry.
Lending practices have been put under the microscope, and from there, banks/lending institutions are taking a closer look at a prospective borrowers ability to service a loan that is being applied for.
What lenders are looking at more so is the borrowers living expenses / lifestyle.
Is the borrower living beyond their means.
In the past each bank used a ‘benchmark’ living expense rate dependant upon whether for a single applicant, joint applicant, number of dependants etc.
As part of the application process now, borrowers are required to provide a breakdown of how their money is spent on a monthly basis e.g.
- Property Expenses
- Child Care/Education
The list goes on.
If the declared monthly living expenses are below the lenders ‘benchmark’, the borrower needs to explain why, however the lender will still use the ‘benchmark’ figure.
If the declared monthly living expense is above the ‘benchmark’, the lender will use the declared figure.
Some banks now have software that can track a prospective borrowers monthly spend from bank transaction statements segmenting the expenses into the above categories.
Before applying for finance, a borrower needs to look closely at their monthly expenses V monthly net income.
A prospective borrower can’t say to the lender, ‘we won’t be maintaining the same lifestyle once we buy the property hence our monthly expenses will be less’.
Borrowers need to plan when they are looking to borrow for a property purchase.
Lifestyle changes may need to be made well in advance.
If you have any questions regarding your finance needs, simply call me on 0417 649 145