Three things that could hinder your chance of getting a home loan following royal commission
There are three things that could be jeopardising your chances of securing a home loan. After taking a battering over their conduct during the royal commission, nervous bankers are poring over everything to make sure people can afford a mortgage.
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Online shopping, Uber Eats and a high credit card limit could be jeopardising your chances of securing a home loan.
After taking a battering over their conduct during the royal commission, nervous bankers are poring over everything from household expenses to discretionary spending and income to make sure people can afford a mortgage — making the process of securing a home loan even more fraught and lengthy.
Industry sources say this stricter lending criteria has increased the average mortgage approval process from just two weeks in 2016 to up to two months.
Experts say high credit card limits, Afterpay purchases, online shopping and even a few Uber Eats meals can endanger an applicant’s chances of securing the money.
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“As a consequence of the royal commission the banks have now reviewed their processes for lending and it appears they have a lending criteria that is much tighter than previously,” Housing Industry Association principal economist Tim Reardon said.
“We are seeing a greater number of loans being rejected and the time frame for loans to be approved is expanding … we are hopeful it’s a cyclical issue and that the impact will decline over the first half of this year.”
Sally Tindall, research director for financial comparison site RateCity.com.au, said discretionary expenses were becoming red flags for banks. “Lenders are likely to comb through your expenses so make sure everything is accounted for on your statement,” Ms Tindall said.
“A few online shopping purchases and a handful of Uber Eats meals can often seem innocent, but if your home loan application is borderline, the bank might read further into them.”
However, the big four banks deny home loan approval processes have blown out, with one industry insider claiming approvals only stretched to 25 days.
Westpac general manager of home ownership Will Ranken said the bank had recently updated its group credit policies and increased the number of “expense assessment categories” for home loan customers from six to 13.
“The enhancement of our expense categories means our staff and brokers can prompt customers to remind them about expenses they may have forgotten,” Mr Ranken said.
“For example, this can include pet insurance, gym membership fees and media streaming service costs.”
NAB executive general manager of retail Krissie Jones said NAB’s risk appetite “has not changed” in recent years.
“On average we are approving 80 per cent of NAB home loans within five days, and this has not changed in recent times,” she said.
An ANZ spokesman said the bank has not seen a material change to average approval times or approval rates as a result of policy changes. And a CBA spokeswoman declined to comment on home loan approval times, instead saying “the bank is committed to helping Australians achieve their home buying goals”.
Industry sources said from July this year ASIC has indicated that lenders will need to assess a person’s ability to repay the entire credit limit within three years — a move which will restrict applicants’ borrowing capacity.
MORTGAGE MADNESS A HARD LESSON
Teachers Matt and Chloe Hill, were told they needed a second income to get a home loan — despite being able to meet repayments on a single income.
The hardworking couple, who teach at a high school in Penrith, have now had to resort to selling one of their cars, avoiding takeaway food, and ditching their credit cards to please lenders.
“I’d definitely say it’s harder to get a home loan now,” Matt, 33, said. “We limit takeaway … we sold our car because we thought this might make things more possible.
“We have to prioritise where we spend the money.”
The Springwood couple are skimping so hard that their kids — Archie, 5, and Rupert, 2 — are now wearing hand-me-downs from Matt’s brother’s kids — all so their balance sheet makes the banks happy.
“We were looking at borrowing around $200,000,” Matt said.
“But without Chloe having at least two contracted days a week, they wouldn’t do that. Even though we could meet the repayments, they wanted a second income.”
Chloe has now been forced to work an extra day each week to meet the banks’ lending criteria, meaning less time with the kids.
“Even with Matt being a full-time teacher, they had to see we had a second secure income,” Chloe said. “I’ve gone back to work one day extra this year.”
They are now considering moving as far as Blackheath to make things work. “
That’s the only place we can afford the sort of property we need for our family,” Matt said. “That would put our commute to Penrith up to over an hour each way … but that’s what we have to weigh up.”