If you drive a car or buy cosmetics you’re in the sights of some of Australia’s largest lenders as they move to tighten their home loan approval criteria by increasing their scrutiny on the day to day spending habits of home loan applicants. From Monday 27th of November loan applications will not progress past the initial review stage AMP says as they implement the new measures.
What does this mean for applicants?
Applicants for AMP home loans will be asked to fill in a 14 question survey looking for detailed information about expenditure on a range of household items and discretionary spend like ordering in a pizza, catching an uber home or taking that weekend away. AMP says it also will reserve the right to request information at their discretion and of course as they will have access to your bank account statements in an application process they have the ability to check whether you’ve been truthful in your survey response. AMP hasn’t yet made clear what the next step is but there is no doubt that they have been working on detailed assessment criteria for the type of customer they ideally want to approve and not approve and this step is essentially bringing this out into the open to an extent. Whilst AMP has only 1% of the home loan market it is a large player in financial services generally and particularly in self managed super funds which invest in residential and commercial property. AMP is likely the first of many lenders to tread this path.
CBA has also recently announced that it is increasing scrutiny of borrowers credit card expenditure in an effort to reduce bad debts and late payments later on when the reality of customers spending habits combined with their new home loan begins to bite. APRA is driving quite a lot of this activity in the background as it attempts to “refine” criteria used by lenders in assessing home loan applications and will be heartened by the recent AMP and CBA announcements.
So what type of spend is in the frame?
Information requested in AMP’s survey includes “household” items including clothes, shoes, cosmetics, transport, groceries and home and contents insurance. What is seen as “discretionary” might come as a surprise to some who regularly order in but the list here includes eating out, going to the movies, holidays, nannies, education expenses, private school fees and books.
Online retailer catch.com.au
recently conducted research on the amount the average Australian woman spends on cosmetics each day. Catch found that the average was a surprising $3,600 spend on beauty products each year, amounting to $300 per month. As a nation we’re heavier spenders than our US and UK contemporaries with their estimated spend being $2,880 and $2,000 annually. This might not be news to regular cosmetics shoppers or someone who just spent $500 on Eve Lom Night Cream but it’s certainly noteworthy to a bank home loan assessor reviewing whether to lend $700,000 or more to a customer.
As comprehensive credit
reporting begins to take hold there are great benefits in the way of borrowing power
and lower rates for those who keep track of their spend and manage their obligations. As the Banks begin to follow AMP and CBA’s lead and tighten the screws on spend assessment there are even more reasons to keep track and manage your spend. If you’re thinking of applying for a home loan in the next 3 to 6 months, particularly with Christmas on the horizon, evenground is advising clients to take care and keep your credit score clean and your spend smart. If you’d like to know more get in touch any time on evenground.com.au