Since the Banking Royal Commission began probing into Australian banks and their lending practices the banks have significantly tightened up on how they qualify potential borrowers for loans.
In the past it almost got to the point where if you had a pulse and a job (or a social security income), you were more than likely going to get the loan you applied for.
The banks were using a standard set of figures to determine what your family expenses would be for the purpose of the loan application. If you were a family of 4, your cost of living was documented to be the same as any other family of 4 in your area and your monthly living expenses were calculated using a very low estimate based on an absolute minimal lifestyle! For 5 or 6 family members it was the same system, but just using the relative figure for 5 or 6 family members and so on.
However, that practice obviously had holes in it and the Royal Commission has prompted the banks to replace it with a more realistic system.
Now, most banks want to see 3 months of faultless financial records with all transactions during that period to be presented for scrutiny.
Of course this is rather crazy when you think about it! If you are applying for a home loan your life is going to change significantly after you get the loan.
Looking backwards at your last 3 months might reveal gambling/ smoking/ drinking/ shopping addictions (which of course would be important information to a lender), but the fact is that many people have made huge changes to their spending habits and sacrificed many creature comforts when given the opportunity to get something they really want!
At some point in their lives most people have made a decision to save up for something that they really want and subsequently changed their spending behaviour in order to get it.
The banks really should be asking potential borrowers to submit a spending plan showing what they will be spending their income on after they get the loan and then asking the potential borrower to demonstrate that they can follow that plan (with consideration for the fact that the loan has not yet been approved) to see that the applicant is fair dinkum and prepared to make the changes to achieve their goal.
Looking backwards is not a true indication of an applicant’s desire and ability to repay a loan.
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