- About Us
- About You
- Case Studies
If you’re considering applying for a mortgage, be very careful with how you’re using credit.
By Julie Nipperess
The good news for borrowers is that interest rates are lower than they have been for decades. The bad news is that it is tougher to actually be approved for a mortgage.
We’re now living in the era that is officially known as ‘post Royal Commission into Finance and Banking’ and, as predicted, many lenders are still cautious.
But – it’s not the end of the world. It simply means that if you’re applying for a mortgage, you can’t afford to be sloppy with your spending.
For example, one of our Step Up clients recently approached her bank to apply for a loan to purchase an investment property. She has a solid track record, a decent income and a clean credit record, and she’s a long-time bank customer. Nevertheless, the bank still pored over months of her statements, line-by-line… analysing every transaction – from the bottle shop to the beautician, to the shoe shop and the supermarket. Six months of spending laid bare.
Recently, there’s been a bit of push back from some lenders over buy now/pay later schemes like Afterpay and Zip, too.
Why? Well, the banks don’t really like it when you have access to a lot of credit, especially if you’re applying for a loan.
Consider that maybe you have a credit card with a $5,000 limit, and Afterpay approved spending to a limit of $2,000.
These are listed on your Comprehensive Credit Report, which the banks have access to. This credit history is thoroughly investigated as part of a very detailed assessment of your earnings, expenses and your ability to pay back the loan you’ve applied for. This is no arbitrary process. The banks have several calculations they rely upon, and these typically require them to make an assumption that you’re maxed out across the board.
Buy now/pay later platforms are viewed by lenders as an ongoing expense. So, if you made recent purchases, and you’ve still got payments to come out of your account, then the bank will annualise these – this can add a few extra thousand dollars to your living expenses. I’ve also heard of banks requesting loan applicants to close down an Afterpay account and show proof of having done so.
You might feel a bit indignant about this, particularly if you’re someone who is never maxed out and who always pays bills on time and is wary of not overspending; but nevertheless, it’s the way the system works.
It’s not even worth not declaring your Afterpay use. Not doing so could be considered a criminal offence.
There’s no doubt that some people find the Afterpay and Zip-type payment methods really convenient. It might work better for their personal cashflow, or just simply mean they don’t use a credit card to make a purchase.
But in the leadup to asking your lender for a large sum of money – whether it’s a mortgage, a personal loan or business finance, it just helps to make sure that your spending habits are really healthy – and that means limiting your use of credit, paying your bills and adhering to a budget, so you can demonstrate your ability to save.
This is even more important if you’re a first home buyer. If you need help getting your finances in order, contact us.
This is general advice and should not be treated as personal advice. Julie Nipperess is an authorised representative of Step Up Financial Group Pty Ltd ASFL No: 512509.