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Property investors should watch their discretionary spending in 2019, as popular new payment methods can impact a bank’s assessment of loan serviceability.
The royal commission and a tougher regulatory environment for the banks in 2018 translated to stricter borrowing conditions for investors, and a less competitive market than years gone past.
The year ahead is looking brighter, particularly with the banking regulator set to lift its restrictions on lenders with interest-only loans.
However, what will carry into 2019 is more stringent loan assessments from lenders, made easy by the spending and saving behaviours of investors being increasingly online and electronic.
In short: Australians are living their lives online, and it’s easier for lenders to get a full picture of how consumers manage their money.
According to mortgage broker Aaron Christie-David, managing director at Atelier Wealth, borrowers have “nowhere to hide” when it comes to their spending habits, and should be aware their discretionary spends are on lenders’ radars.
“Some banks now require transaction statements, which means borrowers can’t hide with their history of spending. The rise in ‘tap and go’ payments plus technology such as bankstatements.com.au can classify spending into categories and give a lender full visibility on applicant’s spending patterns and how much they save – this level of disclosure is unprecedented,” he said.
“Examples include Afterpay, frequent holidays, high spending on credit cards and even spending on gambling, alcohol and dining are being hauled into question if they are ongoing expenses after their loan has settled or if this constitutes discretionary spending,” he said.
There are steps borrowers can take to make themselves a more attractive candidate, said Mr Christie-David, including the tried-and-tested drawing up a budget and reducing liabilities.
“Most borrowers can’t provide a budget, so this is a great place to start. Get your spending under control and show the bank you have a track record of saving to demonstrate confidence you can repay a loan. Get rid of credit cards you’re not using or reduce limits, it helps to improve borrowing capacity, and clear Zip Pay or Afterpay purchases,” he said.
“Most importantly is your ‘conduct’ on your current loans – if you are showing missed or late payments this could be a deal breaker for some banks. Also pick your lender wisely. For example, applying to Westpac means they can look through your account conduct if you have St George accounts, St George is owned by Westpac.”
Why loans get knocked back
Earlier this year, online broking marketplace HashChing conducted a survey of its broker network, revealing common characteristics in mortgage applications that lenders knock back.
Spending habits, particularly via popular new payment platforms, made the list.
Lenders are now going through individual bank statements “with a fine tooth comb”, according to HashChing, which can shed light on excessive retail spending or out-of-budget impulse purchases.
“If a borrower is an eBay enthusiast, Afterpay addict or has an excessive number of entertainment subscriptions, they might be in trouble,” according to HashChing.