If you thought your Friday night ‘order in’ and buy now, pay later habits were harmless, think again, because your excessive digital spending could well derail your mortgage application.
Our Afterpay payments, eBay and Uber Eats accounts, Netflix, Stan, and other online streaming subscriptions are coming under scrutiny by mortgage brokers and lenders when assessing our repayment capacities and lending potential for a home loan.
While ordering dinner from an online service wouldn’t prevent a potential home buyer from getting a mortgage, the frequency of it could make them a weaker candidate for financing in an increasingly competitive lending market. Banks will now also begin to probe the darkest corners of our digital spending to assess our borrowing power and ability to service a home loan.
General Manager of Banking at Compare the Market, Rod Attrill, said banks were beginning to crack down on borrowers living above their means.
“Lenders will be reviewing spending patterns of all people applying for loans from the number of direct debits to gyms and entertainment platforms right through to regular lunches and ATM withdrawals,” he said.
“The scrutiny of each transaction will be like we have never seen before as banks react to the Royal Commission findings and ensure that no person is given a home loan without a full forensic review of spending habits to ensure the repayment of the loan can be made without negatively impacting the lifestyle of the borrower from a lack of residual income.”
What do banks look at during your home loan application?
Buy now, pay later services have also recently become of particular interest to lenders as a credit liability and some will even require disclosure of any payment balances when applying for a home loan. This will apply to most deferred payment services like zipPay, FuturePay and zipMoney.
What’s more, banks will soon have unprecedented access to consumers’ financial data with open banking. Under this new open data system, which will be phased in from July 2019, banks will be able to access and share consumer-approved digital banking data and transaction records. While this has been hailed as a boon for consumers, it will also allows banks greater visibility of our spending.
Traditionally, lenders looked at our income, savings, credit score, debts, assets and liabilities, among other things, to assess mortgage applications. Even a HELP debt will not be exempt from scrutiny since it can deduct anywhere from two to eight per cent of one’s income.
Mortgage brokers will put extra focus on our discretionary spending, looking into how much we spend on gym memberships, beauty services, takeaway coffee, toll fares, hobbies and travels, to assess our overall living expenses instead of just general household expenditure.
It’s not hard to see how small expenses on luxuries can add up. Aussies who treat themselves to a medium takeaway coffee each day are spending $1,500 a year on their caffeine habit, while our technology devices and digital services addiction is costing us over $2,400 per year. The average Aussie also spends $1,000 a year on fitness activities.
Over one million Australian households are currently experiencing mortgage stress, according to an analysis from Digital Finance Analytics (DFA).
For anyone waiting to join the ranks of ‘homeowners’, there will always be financial hurdles to overcome. To learn everything you need to know, take a look at our home loans FAQs.