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Open Banking: Your digital spending habits could affect your chances of getting a home loan!

by | Dec 10, 2018

Open banking will allow banks to assess their clients’ financial data at an unprecedented granular level – including how frequently they order Uber Eats.

A Canstar survey found that one in three Australians order food delivery weekly, spending an average of $46.54 per order. That’s $2,420 annually – which may be a significant enough figure to affect their chances of getting approved for a home loan.

Linda Veltman, General Manager of Credit Risk at ME, believes that the collection of this financial data will ultimately benefit customers. “It will help the industry better understand customers’ spending behaviour, which will eventually lead to a better assessment of their creditworthiness,” Ms Veltman explains.

So what does this all mean for our prospective and existing borrowers? Banks and lenders alike have come under rigorous scrutiny and pressure recently when it comes to making a more thorough assessment of the customers’ living expenses. In the past, the lenders used a fairly standardised benchmark figure for living expenses based on family size, location and income level called “HEM” which stands for Household Expenditure Measure. This is no longer relied upon solely and living expenses need to be verified by your broker utilising budgeting tools and checking bank statements. In my experience, most clients’ estimated living expenses are generally much lower than what they actually are or have been. Many times once the real living expenses instead of the basic HEM are inputted into a lender’s servicing calculator the deal can fail servicing and no longer qualify. One thing I know, and this is especially first home buyers, is that their spending habits change dramatically one they take on a home loan. By assessing on past spending habits can be quite unfair as we all know most people live within their income and while they are fancy-free they may be a little looser with spending, then once they purchase a home their spending tightens making sure the home loan is paid first before making any discretionary spending.

Prospective borrowers need to prepare for lending ahead of time now making sure their account activity puts them in the best possible light while also improving spending behaviour. Be advised; consumer finance such as Afterpay and Zip affect your borrowing capacity as they are another liability just like car loans and credit cards and their repayments need to be factored into servicing calculations. Definition of consumer finance: the division of retail banking that deals with lending money to consumers; this includes a wide variety of loans, including credit cards, personal loans, interest-free loans for household goods and auto loans. Consumer finance is the killer of savings. Nearly every client that has good savings have no consumer debt and the clients that have plenty of it have no savings.

Finally I wanted to mention gambling. There are many of you out there that utilise various betting Apps such as Ladbrokes, Unibet, Sportsbet etc. These debits generally appear in your bank statements and depending on how frequent can paint a bad image leading the credit assessor to assume there may be a gambling problem. Would you lend your money to people you thought had a gambling problem? In addition, regular ATM withdrawals at clubs, pubs and casinos will tell a similar story.

We are in a new digital world where information about you is everywhere so we need be mindful of that. As always, Switch Finance is here to help you navigate through this minefield of lending that has certainly become a great deal tougher in recent times. Don’t hesitate to make contact should you need any advice or assistance.

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