Black and White Finance update - April 2018

It’s fast, it’s simple, and it’s easy to read this month. April’s Black and White Finance update delves into what the banks are looking at when approving your application now, and what to be aware of when looking to refinance, buy your next property, or your first home - enjoy!

The Banks are tightening, yes, but why are these new measures such a big deal?

Simply put, the banks are now looking at what you had for breakfast – true story. They have enhanced their ways of capturing living expenses or as the banks refer to it, your Household Expenditure Measure (HEM). They have also made changes to the ways in which they ask you to verify your information.

Westpac and St George for example, as of 17 April 2018, require 13 expense categories to be completed to capture expenses from groceries, entertainment, telephone, etc. Yes, up to 13 categories in addition to your liabilities and other outgoings. If one of the 13 categories is listed as $0, a detailed explanation will be required. 

The aim is to encourage brokers, and their customers, to have more detailed conversations to better understand different financial circumstances – this will help banks with their assessment of any application for responsible lending purposes. 

But you don’t just change the rules overnight…

Be prepared for even more change called ‘Positive Credit Reporting’. This new initiative will be a real game changer. Most banks require statements to support your expenses and liabilities, but with positive credit reporting the banks may not even need to get these documents from you to support some of your application information. Positive credit reporting will give lenders access to a deeper and richer set of data. It is understood by some industry leaders, that this will give the banks greater insight to see pretty much everything, including what you spent on smashed avocado. This change would enable the banks to better assess a borrower’s true credit position and their ability to pay a loan. Again, the banks will not even need the old statements because your data is all available at their fingertips to support your application. The big four banks are meant to be fully participating in this new credit reporting system by 1 July 2018. See here for the more information on the government's treasury site: https://treasury.gov.au/consultation/c2018-t256276/

Our key take away

If you’re looking at investing or buying your first home in the next 6-12 months, try keeping it real. Try living life and having fun within your means because if you’re not, the banks will more than likely know about it which could be detrimental to your borrowing capacity – well according to their new HEM measures. 

Stronger and more in-depth conversations with your broker to obtain a full picture of your financial circumstances will be paramount to delivering the best possible service and outcome. And while income assessment is being tightened and your living expenses are being fully reviewed, it’s important to understand the differences between the policies each bank has. The risk-adverse environment that our banks are currently creating, will likely remain for some time, especially in the light of the current banking royal commission. For more information on the banking royal commission, check out last months Black and White Finance update here: https://www.blackandwhitefinance.com.au/blog/2018/3/18/black-and-white-finance-update-march-2018

We're keen to hear what you think about our monthly updates. We're keen also to receive your questions and if you want to know more about each banks requirements, or of some great terms, or rates on offer at the moment, please send a note to peter@blackandwhitefinance.com.au. Once again, thank you for reading.

Peter Vassilis