Household Budgets and Borrowing Capacity
In the first round of hearings during the royal commission into the ‘Banking and Finance’ industry the spotlight was shone on the discrepancies between a customers declared living expenses in loan applications, and what was actually being expended on day to day living evidenced through their bank statements. Since that time there has been ever increasing emphasis placed by banks on this area to ensure their staff and ‘broker’s alike are cross checking declared living expenses with the bank statements and questioning clients where discrepancies arise.
To help with accuracy and completion by their customers, the banks have widened categories for living expenses. Personal expenditure areas like haircuts, clothes, Xmas and birthday gifts, pocket money for the children, gambling etc are examples of costs that can be easily overlooked or considered minimal but every dollar is accountable. So the effect of this is to reduce a customer’s borrowing capacity on paper.
This might seem pedantic by the banks but consider the flip side where customers have been allowed to borrow to excessive levels based on an unrealistic declared living expense position? There is a mutual responsibility for customers, brokers and lenders to get this declared living expense area as accurate as possible when completing loan applications.
However let’s adopt the ‘glass half full’ approach to this & consider the following benefits:-
Clients expenditure habits are revealed, painting a clearer picture, whether that be good or bad
Good consistent lending practice leads to good outcomes
A sharing of responsibility between clients and brokers/lenders leads to a stronger partnership
At COMPASS, both our financial planning & lending arms work very closely with our clients to ensure care is taken when considering our client’s needs & objectives.
Ring Michael at COMPASS Lending on 6583 2211