How borrowers are getting stung by the Netflix home loan test
AUSSIE borrowers wanting a home loan are having their everyday living expenses scoured with more scrutiny than ever before — leaving many very upset.
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YOUR Netflix account and gym membership could contribute to you being knocked back for a home loan.
In wake of the Royal Banking Commisison, lenders are ramping up their scrutiny for loans and delving into all your spending secrets.
A crackdown by mortgage lenders is forcing potential borrowers to divulge even their smallest household costs including coffees, lunches and lawn mowing.
And home loan specialists say this is the new normal.
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Households on all income levels are under the banks’ microscopes with one well-off family with a household income in excess of $300,000 recently being asked by their lender whether they were on the $10 Netflix monthly account or the $18 account.
Other examples include a highly-paid doctor being forced to hand over three months of a transaction account and credit card spending history.
Home Loan Experts managing director Otto Dargan said banks and regulators had been increasing their focus on living expenses since last year, and the banking royal commission had helped to push it to “boiling point” in recent weeks.
“Customers find it an invasion of privacy and they feel frustrated by a lack of common sense,” Mr Dargan said.
Other examples of the intense new level of scrutiny include:
• A borrower who had low transport expenses was not believed by their bank and had to use Google Maps to show that they walked to work;
• A family’s grocery shopping bill was questioned for being too high and they had to show it was one-off purchases for a party;
• A bank questioned why a borrower had neglected to include their monthly lawn mowing bill in their application;
• Self-employed people and business owners have found it particularly tough because they often put business expenses through personal accounts.
Angelo Benedetti, managing director of finance broker Financia, said banks believed many people were living beyond their means, but their crackdown on living expenses was not consistent.
“Every lender is doing it but in slightly different ways,” he said.
“They don’t discriminate whether you have one dollar in the bank or $1 million.
“Clients are not happy — they say it’s an invasion of privacy but it’s the way the world is, and will be this forever and a day.”
Mortgage Choice CEO Susan Mitchell said living costs that were “now very much under the microscope” included gym memberships, subscription television, grooming, Uber fares, tolls and parking.
People should start preparing their finances for a home loan application three or four months in advance, she said.
“Borrowers are advised to complete a thorough review of their bank account and credit card expenditure and think about cancelling any unnecessary ongoing costs that might be going under the radar.”
An Australian Banking Association spokesman said the industry had 12 standard categories of expenses that could be assessed — including rent, clothing, groceries and education.
“Banks take their obligation to determine customers’ ability to repay a home loan very seriously and work hard to ensure this process is both as accurate and simple as possible,” he said.
REA Group executive general manager – financial services Andrew Russell said royal commission revelations had helped drive a push to more responsible lending.
“Banks are now checking expenses to the last cent. This is the new world. Consumers need to fully understand their expenses to get a loan, which can only be good thing,” he said.
“The scrutiny on expenses is reducing the borrowing power for many potential home loan borrowers by up to 20 per cent.
“Consequently, the tightening of credit is going to flow through to house pricing given
the reduced borrowing levels.”
Originally published as How borrowers are getting stung by the Netflix home loan test