Interest rates Australia: ‘Home loan cleanse’ you need to do right now

Whether you’re considering refinancing, looking for a new home or your first home, you need to rid your life of these financial red flags right now.

Corey and Sarah Skinner and three-month-old daughter, Everley and dog Kingsley, have looked to refinance their home loan. Picture by Wayne Taylor 11th August 2022

Whether you’re considering refinancing, looking for a new home or trying to get your first leg up on the property ladder, you need to get rid of any financial red flags, in all aspects of your life, now.

This includes a three-month “home loan cleanse” according to finance guru Mark Bouris.

In an uncertain real estate market, with borrowers coming under increasing pressure as interest rates continue to rise, home buyers need to make themselves as attractive a proposition to lend money to as possible.

That means cutting the financial fat out of your money diet.

“You need to clean up your expense profile, such as your betting app, that can indicate a habitual expenditure process,” Mr Bouris, executive chairman of Yellow Brick Road said.

“You need to reduce your exposure, and reduce the level of risk lenders see in you. A lot of people don’t understand that things that might seem simple, such as how many credit cards you have, can dramatically affect your chances of getting a loan.

You need a ‘home loan cleanse’ to make yourself more attractive to lenders. Picture: Tim Hunter.

“That’s why you need to embark on a three month cleanse of your finances. To illustrate a spending pattern, or lack of habitual spending, that shows you’re not a lending risk.”

As banks come under increasing pressure from the industry regulator APRA and shareholders to limit who they are lending to and how much, prospective borrowers need to clean up their finances more than ever.

Mr Bouris suggests people use a broker to help you with the cleanse – “they know all the tricks” – but he also recommends people do their own research and are diligent and disciplined about what they need and want in their lives.

It’s not just about deleting your betting app, but about ensuring there aren’t numerous betting deductions against your saving accounts or late night visits to the casino, for example.

There's also your credit cards, which can be a big black mark against you.

“If you have three credit cards, ask yourself if you really need them all,” Mr Bouris said.

“You should only keep what you really need because lenders assess you on all your cards. So if for example, you have three cards, each with a $4000 limit, the lenders will assume you owe 12 thousand, so get rid of as many as you can.”

Your use of Buy Now Pay Later services such as Afterpay could also cause issues, as lenders could consider that monies owed also.

Yellow Brick Road Executive Chairman Mark Bouris says prospective borrowers need to do more to reduce the risk lenders see in them. Picture: Hollie Adams/The Australian

You should also question your use of food delivery services and streaming services, deleting those apps where possible too.

“I know plenty of people who have Netflix for example but never look at it, get rid of those too if you can, ” Mr Bouris said.

“You can always have a break and if you decide you want it back, you can sign up again.

“If you have a cleaner, that’s something else you should look at. Do you need them, do you need them as often?

“Review everything, and again a broker can really help you here. Wait three months to do it, to clean things up and then go hard for that loan.”

Getting yourself match fit for your loan also gives you a chance to understand what that cost of living squeeze might be after you refinance or b

uy that new house. Can you keep that kind of budgeting up?

It gives you an good idea of what sort lifestyle you are signing up for and if you decide it’s not for you, you can always pull back the boundaries.

“If you try it out and you don’t like living that way, you can always borrow less,” Mr Bouris said.

“Change what you want. Instead of going for that dream house, go for a townhouse or a semi-detached home and have the lifestyle you want. You don’t have to borrow $1.5 million and live on Vegemite toast.”

HOW TO GO ABOUT YOUR THREE MONTH HOME LOAN CLEANSE

– Limit/stop habitual spending

– Delete your betting app

– Reduce the amount of credit cards you have

– Don’t use Buy Now Pay Later services, clear any debt to them you have

– No more food delivery services

– Limit your streaming services subscriptions

– Be disciplined but disciplined about what sacrifices you can make

– Give it three months and go hard for that loan

– If you don’t like living that way, you can always borrow less

Originally published as Interest rates Australia: ‘Home loan cleanse’ you need to do right now