You might be aware by now, from all the commentary in the media, about lenders’ increased scrutiny of mortgage applicants’ monthly living expenses.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has highlighted the lack of scrutiny of living expenses and how the same are verified.
Therefore, you may have recently experienced lenders’ or your broker requesting further information from you in order to verify your monthly living expenses.
How are living expenses being verified?
Lenders are now verifying customer living expenses in the following ways (to name a few):
- Going through bank statements line by line;
- Running bank statements through software that categorises cash inflows and outflows into income and expense categories;
- Requesting and checking your utility bills, rates notices etc.
How are lenders categorising living expenses?
Most lenders are now expanding their living expense categories (if they haven’t already) to comprise the following (to name a few):
- Basic Housing & Property Expenses
- Rent / Board – even if you do not pay board, some lenders now assume up to a default board of $650 per month
- Communications & Media
- Food & Groceries
- Recreation & Entertainment
- Clothing & Personal Care
- Medical & Health
- Education & Childcare
- Other expenses that do not fit the above
- New expenses after settlement.
Burden or Benefit?
Whilst the above exercise may seem exhausting and overkill at first glance, undertaking it thoroughly may help you to understand exactly where your money is being spent. It can also help you identify where you could potentially cut back and save some money.
So looking at it from a “glass-half-full” perspective, I think that this heightened level of scrutiny is actually a good thing for borrowers in so far as it may provide you with a greater level of detail as to where your money is being spent, how to budget more efficiently and whether you can afford to take on any further financial commitments.
If you would like to undertake an audit of your living expenses, there are many budgeting tools online that you can download. Alternatively, send me an email or message and I can email you the tool that I use during my due diligence which expands on the above categories in much more detail. Hopefully, it will help you to categorise your own living expenses and give you some insights into your spending.
It is also important to note that even though you might be very thorough and provide lenders with a very detailed account of your living expenses, the lender may still adopt their own default living expenses for you if your declared living expenses fall below their minimum default level. That is why it is important to provide evidence of your recurring living expenses in addition to your detailed account of the same.
As always, if you need any clarification of the above or if you would like to know how your living expenses may impact your borrowing capacity, please get in contact as it may be the difference between a successful application and a declined one.
Disclaimer: The information provided herein is for general information purposes only and does not constitute specific advice. It should not be relied upon for the purposes of entering into any legal or financial commitments. Specific advice should be obtained from a suitably qualified professional before adopting any investment/financial strategy.