Article by Stephanie Aikins www.nestegg.com.au
With comprehensive credit reporting now common, tightening lending practices and open banking set to come in next year, the landscape of applying for finance is rapidly changing. Nest Egg spoke with an established mortgage broker to find out how consumers’ spending habits can impact their capacity to access finance.
Never before has the details of consumers’ spending been so accessible for lenders, as our spending habits increasingly shift towards electronic payments.
With the RBA predicting last week that cash will soon be a “niche” payment method, it seems this trajectory is only set to continue to the point that the entirety of our spending occurs via online transactions.
“You need to be aware that in this Big Brother world, everything is being recorded and we can’t not consider that,” says Nicole Cannon.
As a Sydney-based mortgage broker since 2002, she says banks and lenders are increasingly looking at every aspect of daily spending through trail left behind by online transactions.
“In this day and age where everything is just a tap, people actually do really lose their sense of value for money,” she says.
“The banks are looking at all those little transactions that go towards your entertainment, coffees, or lunches and all of that type of thing, because they want to see that after all your spending, you’ve still got surplus left over to be able to pay any mortgage.”
“They’re wanting to get quite a detailed overview of your everyday living expenses.”
While Ms Cannon acknowledges that increased discretionary spending, or spending on everyday luxuries, is often the result of circumstances, she says it is important for consumers to realise that banks may increasingly look at such expenses to determine the desirability of a loan applicant as the regulatory climate sees lending tighten.
“The banks are being overly cautious, I think, but we have to adhere to that,” she says.
With the advent of “open banking”, which will allow banks unprecedented insight into consumers’ financial data, she says this scrutiny of everyday living expenses, from your car loans to your UberEats bills, is likely to increase.
“I think there will be [increased scrutiny], as there’s just going to be more transparency with the conduct of any style of bank account,” she says.
“Our consumerism is becoming a disadvantage.”
She says there are three key things consumers looking to source finance can do to ensure they are not hindered by their everyday spending:
- Know what you’re spending
Ms Cannon says it is common for her clients, regardless of their net worth, to be unaware of the amounts they are spending on the little things.
“Whenever I sit down with customers and do a review, regardless of their level of income, most are shocked when they see what they’re spending,” she says.
“Once they have an understanding of what they’re spending, it puts it in perspective and they understand why their borrowing capacity may be significantly shorter than what they thought.”
- Take responsibility for your repayments
As open banking comes into effect, she says it will be more important than ever for consumers seeking credit to make their repayments on time.
“If you’re late constantly, or waiting for an SMS to remind you, that will start to have a detrimental effect,” Ms Cannon says.
“People have got to start taking ownership and responsibility for their bills. Because if you’ve reached 15 days after that repayment date, there will be a mark against your name that will be in the new comprehensive credit reporting.”
“Consumers do need to be mindful of that.”
- Find a broker that will work with you
Finally, Ms Cannon says it is important to find a mortgage broker that understands your spending can fluctuate dependent on current circumstances and will seek out a loan provider that look beyond the six-month savings statements prior to the application for the loan.
“I think there needs to be a bit of a buffer and understanding that just because they’re spending ‘x’ pre-loan, doesn’t mean it’s going to be the same post-loan,” she says.
“If the big four or your personal bank of however many years comes back and says no, there’s often another place for you. It’s just a matter of working with a broker that will find you a different lender that has a more open-minded approach.”
“Not a more relaxed approach, but a more realistic understanding of your explanation if there is a reason for high living expenses at one particular point in time.”