Home buyers keen to capitalise on Sydney’s falling prices may want to go on a diet. Or learn to cook.
Housing experts have warned that lending institutions have become so strict in their assessments of prospective buyers’ spending habits they are scrutinising every dollar of expenditure.
And that includes what buyers spend on food, going out, hobbies, travel, clothes and so much more.
More frivolous spending has tended to attract the ire of banks, which have been mandated by financial regulators to be more cautious in their determinations of what buyers can afford to borrow.
One mortgage broker said getting approval for a loan could even come down to “your dinner choice”, with habits like frequent Uber Eats orders or other home delivery considered a red flag for lenders.
Gemmill Homes managing director Craig Gemmill said getting finance was becoming a big issue for buyers. Many were forced to rethink the types of homes they purchased on account of not being able to get large enough mortgages to support their intended purchases, he said.
“The banks are simply not lending anyone any money,” Mr Gemmill said. “It is across the board. It is first, second and third home buyers. These people can’t get the funds.”
Pressure from the Australian Prudential Regulation Authority, along with a general atmosphere of caution from lenders amid the banking royal commission were the main drivers of the tighter lending environment, Mr Gemmill added.
“Banks haven’t changed their guidelines, but they are just applying them far more stringently now,” he said. “In the past banks would work out a multiple of your income, less your big stuff like car debts and exposure to credit cards.
“Now they’re looking at your banks statements to see how often you have takeaway food.”
Mortgage Choice chief executive Susan Mitchell said many buyers were taken off guard by the level of scrutiny banks were going into.
“The current lending environment means that (banks) are questioning borrowers’ living expenses down to the last dollar,” she said.
The Mortgage Choice network had encountered multiple extreme cases of cautious lender activity, Ms Mitchell said.
One broker in the Mortgage Choice network recently reported helping a couple with an application to top up their current loan for a renovation, only to run into a snag.
The couple had held the mortgage for nearly 10 years and were always on time with the repayments, but had recently gone on a holiday paid for with savings.
The lender requested to view four months’ worth of the borrower’s living expenses and questioned the expense of the holiday.
The lender eventually decided the couple would be living beyond their means by refinancing despite their history of disciplined saving and servicing their loan diligently. Their application was rejected.
It was only after changing lenders that they were able to refinance their loan as originally intended.
Another broker reported dealing with a couple who had to justify a $26 fortnightly expense for their child’s swimming lessons.
The lender wanted to know if the expense had an end date because $26 a fortnight over a 30-year term would total more than $20,000.
Ms Mitchell said buyers could improve their prospects of getting a loan by keeping in mind that policies differed among lenders — some required proof of four months’ living expenses, others only needed one.
Buyers also needed to be patient, she said. “It is now taking longer for a loan to progress from application through to settlement.”
Making easy lifestyle changes in the months preceding a credit application could make all the difference, Mr Gemmill added.
“Make sure you are organised before you apply,” he said. “It’s not just a simple process anymore. Technology has been a real game changer. No one uses cash, so everything can be tracked when you use your cards.”