Lenders demanding greater detail of living expenses for loan approvals


If a lender asked you how you spend your money each month, would you be able to provide a detailed explanation of your expenses?

How many of us actually keep an accurate account of our monthly expenditure?

“Just say $4,000. I have no idea how much I spend to be honest,” is what brokers are commonly told when helping clients apply for a loan. Well, borrowing is about to get a lot more difficult and time-consuming if you’re unable to provide these details at application time.

A recently announced crackdown by the Australian Securities and Investments Commission (ASIC) on lax lending practices means that lenders now need to assess a loan applicant’s ability to repay the loan, while not overextending themselves financially, in far greater detail.

This is important for reducing what is known as ‘mortgage stress’, as overextending your finances can lead to financial hardship. You can read more about it at market comparison website, finder.com.au.

“Rather than obtaining a single monthly living expense amount and then relying on a benchmark figure to assess suitability, a borrower’s actual figures for different categories of living expenses (e.g. food, transport, insurance, entertainment) will now be obtained. This will provide lenders with a better understanding of consumers’ expenses,” explained an ASIC statement.

As a result, Westpac, for example, has advised brokers that because of updated expense-to-income ratio requirements, applications that don’t meet the threshold “may not result in an approval decision straight away”.

If you’re planning to apply for a loan soon, our advice is to start keeping an accurate record of your earnings and expenditure using a spreadsheet or suitable computer app. This means that when completing your application, you can provide lenders with the detailed figures they need to approve your loan.

And the more detail, the smoother the process should be.

Applying for a loan with Smartline should make the application a lot easier as we can guide you through the process and ensure that all of your living expenses are taken into account when applying for a loan.

If you need further advice, or are ready to apply for a loan, please contact your Smartline Adviser.



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