Having difficulty getting a loan for your home or investment property?
Well, you're in good company - so are many others with the banks more carefully scrutinised your expenses.
Even your dinner choice could have an impact on your future lending potential according to Craig Gemmill, Managing Director of Gemmill Homes.
Personal spending habits on things like clothes, holidays and take away food are becoming a factor when a bank considers a loan application.
“Increased scrutiny into the banking industry and tighter controls on lending obtaining finance is becoming an issue for prospective home owners,” said Mr Gemmill.
“The banks are still lending money, but it’s much tighter.
“It’s across the board, it’s first, second and third home buyers. These people can’t get the funds.
“In the past banks would work out a multiple of your income, less your big stuff like car debts and exposure to credit cards. Now, they’re looking at your bank statements to see how often you have takeaway food.”
“APRA want increased security on the amount the banks are lending to home owners, so the balance has shifted. The banks haven’t changed their guidelines, but they are just applying them far more stringently now.”
Despite this though, Gemmill says Australians can ensure they do not run into credit problems, by following simple rules.
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Being prepared before applying for a loan and making easy changes to their lifestyle in the months preceding a credit application can make all the difference.
“The most practical advice we can give, is make sure you are organised before you apply. Understand that everything you do is going to come under more scrutiny,” Mr Gemmill explained.
“It’s not just a simple process anymore. Technology has been a real game changer. People are using less cash, so everything can be tracked when you use your cards.
“Make an informed decision before you buy, knowing that someone is watching you.
- Be Organised – go to the bank with as much information as possible. Include expenditures, discretionary income, school fees and other costs.
- Minimise your expenses – Once issues are discovered in a credit application it is difficult to overcome them. Work on minimising unnecessary spending in the months prior to applying. Less Uber Eats could have a significant impact on your chances of approval.
- Compulsory credit reporting – In place since July 2018, all banks have a responsibility to put all information into a personalised credit files, giving them more information on customers and impacting your credit score. If you’re a day late on your credit card, it is reported.
- Technology tells all – Everyone 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.
- Buy now, Pay Later Evils – Credit schemes like Afterpay and Zip Pay are classified as a debt and can be viewed in the same way as a credit card. Similarly, if you miss a payment and are charged interest, it could be potentially viewed as a default.
“Most people are hearing about problems after applying for a home loan and an issue has come up in a credit check,” Mr Gemmill said.
“You can’t do much about it then, but you can be better organised and make small changes before you apply.
“If you’re a day late paying your credit card, if you overdraw your account, that is all reported and that affects your credit score.
“Simple changes can make a huge difference. If owning a home is important to you, make it the priority.”