3 unexpected factors limiting your borrowing capacity

Applying for a home loan is a minefield of surprises. The banks are clever – very clever – and they have collected enough data on all of us to accurately work out who is going to repay a loan and who isn’t.

What’s surprising is they’ve taken a lot more data into account than anyone expects. I thought I was a bit of a statistics nutbag, but whoever thought these up is on a whole new level.

NO HOME PHONE, NO LOAN
I’m Generation Y and I don’t have a home phone. Actually, I don’t think any of my friends do either. Well, according to Australia’s banks, that makes me a higher-risk borrower. It is a proven fact that people who provide more contact details on their loan application are a lower risk than people who are less forthcoming.

Some people who leave out their contact details on loan applications simply don’t have a home phone, but there are also many people who don’t want the bank to contact them or accidentally missed a few sections on the application.

Either way, they are a higher risk.

It makes you think twice about deciding against the broadband and home phone line bundle, doesn’t it?

SKINNY PEOPLE CAN BORROW LESS
No, the banks don’t weigh you when you apply for a loan – well not yet anyway. But they do look at your cheque account and all of your expenses. Your gym membership and private health insurance will be taken into account when lenders calculate how much you can afford to borrow. This is due to new legislation that requires banks to look more closely at your living expenses.

In actual fact, the biggest impact is usually from private school fees. Dropping someone’s maximum loan size due to their gym membership is a bit much since they can cancel it at any time. However, it makes a lot of sense to reduce someone’s loan if they are paying private school fees for three children. 

The good news is that if your lender reduces your maximum loan size because of “discretionary lifestyle expenses”, you can normally cancel them and they will allow you to borrow more.

I guess there is still some common sense in the industry.

YOUR NEIGHBOURS
Have a look down your street. Is it 90210 or an episode of Housos?

Credit reporting agencies are actually keeping track of which areas have high concentrations of people who are missing their repayments.

In the past, they kept track of this on a suburb level. Now they are looking at each street! This makes sense because most suburbs have a few upmarket streets – and a few you wouldn’t want to walk down without wearing a bulletproof vest. 

They look at where you are living now and also where you are buying your investment property. Remember that your tenant needs to be reliable too.

WHAT DOES THIS ALL MEAN?
Banks look at a lot more than you realise when they assess your loan.

A good mortgage broker will guide you through the process and will make sure you don’t get stuck.

Don’t worry – these little things are not likely to get your loan declined on their own. However, they will lower your credit score, which means that if your application isn’t the strongest then you may get declined.