A yet-to-be-legislated scheme that will allow banks access to consumers’ financial data, will make applying for a home loan more complicated.
Future home owners will need to think twice about their spending habits, as banks will look to follow customers financial footprint in a bid to better assess their borrowing capacity, by scrutinizing their bank statements.
The plan is, with the permission of the customer, for financial data to be shared among accredited financial institutions. Within 12 months, all Australians banks will be brought under the scheme.
To assess a borrowers’ household expenses and their ability to meet their repayments Banks currently look at:
- grocery bills
- medical expenses
- utility bills.
Under the proposed changes, customers’ digital spending habits will be reviewed;
- online shopping history
- food ordering and spend.
Every purchase will be tracked by banks and lenders, to help them analyse the borrowers ability to pay back a loan.
Whilst this sounds daunting, this isn’t all gloom and doom for future potential borrowers.
Linda Veltman, general manager of credit risk at ME bank, said the collection of such information ultimately benefited customers. “If you ask them how much they spend off the top of their head, it would be very different to what their spending habits have been over a period of time due to the fact it’s so easy to jump online and make a purchase,” she said.
Recent comprehensive credit reporting legislation and the open banking initiative have each pushed the industry forward to better understand customers’ spending behaviour and, in turn, better assess their creditworthiness, according to Ms Veltman.
She said having access to a customers’ financial footprint would make applying for a loan easier “because the information will all be available, no matter who you go to”.
The Brokerage Australia’s Senior Mortgage Broker Natasha Davey suggests those who are looking to apply for a home loan over the next 12 months should start implementing tactics now, to improve their chances of being considered a good candidate for larger assistance in home financing.
She states that Banks will look at six months of savings history. Future borrowers should be prepared by;
- Separating spending and savings accounts. Create an account in which you make a savings deposit equivalent to the value of future mortgage repayment (Look for an account where you lose if you withdraw money and get rewards if you deposit money regularly. If you are a first home buyer, you can look at genuine savings being your 12 month rental history statements from your real estate agent).
- Start budgeting wisely
- Minimise your living expenses, buy cutting back on non-essential items
- Reduce your credit card limits and cancel cards you don’t use
- Pay any personal debts down
- Reconsider how you spend. For example;
- buying ingredients in one big shop up at the beginning of the week can look more fiscally responsible than spending nightly on food
- prepay electricity on a monthly basis rather than a quarterly
- pre-pay for coffee on coffee cards, rather than paying for it daily
- pay all bills on the due date (late payments will result in your credit rating being affected).
If you are considering applying for a home loan in the next 12 months, it pays to speak to a professional about your situation now.
Contact Senior Mortgage Broker Natasha Davey, for an obligation free chat about your situation.
Call 1300 466 455.