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A living expenditure assessment gives your broker a peek into your world – it is probably the most intimate aspect that we are involved in to help guide you on your finance journey. It is here that we learn about your financial situation through our Broker Fact Find. And just in case you were wondering, yes - we see all those nights out on the town, your go-to coffee stops, and even where you go to the gym! A little creeped out? Don’t sweat it – our brokers uphold a strict confidentiality policy (we won’t judge your brunching habits) because reviewing your living expenses is a crucial step in determining your borrowing capacity (and who doesn’t love a good brunch!).
So why do we need to review your living expenses? As your mortgage broker it is our job to set you up for success on your home loan journey. We need the full picture of your financial situation to accurately determine your borrowing capacity; or how much you can realistically afford in mortgage repayments alongside your everyday living expenses. This gives us the best outlook to ensure that if unforeseen circumstances were to arise, you would be able to stay on your feet and keep your roof over your head. Here are the ten key areas that we will assess:
1. Utilities and Rates for Owner Occupied Properties and/or Investment Properties
2. Telephone, Internet, and Streaming Services
3. Groceries
4. Recreational and Entertainment
5. Clothing and Personal Care
6. Medical and Health
7. Transport
8. Education
9. Childcare
10. Insurance
We are going to want to assess the most recent three months, or 90 days, of bank statements for your accounts. This will allow us to calculate an average weekly and monthly living expenditure amount that we can use to determine your borrowing capacity, and even identify potential areas for improvement to help you reach your desired outcome. Of course, there are some expenses that may be one offs, such as a yearly registration fee or a holiday. These expenses may at first look like they blow out your totals, but you can rest assured that it is your broker’s job to logically assess these expenses. Ask your broker about these types of living expenses when you complete your Broker Fact Find.
Why is this important to loan assessment?
Assessment criteria across lenders is constantly evolving and changing in line with the most up-to-date responsible lending obligations. Hence, utilising accurate measures to determine your living expenditure is crucial in providing you with an accurate loan assessment. For example, in 2019, the Hayne Royal Commission declared that the Household Expenditure Measure (HEM) did not provide an accurate depiction of a borrower’s income and debt, as well as underestimating how much people spend on non-essentials. As a result of this, some people defaulted on their loans; experiencing substantial financial hardship as they were unable to afford their mortgage repayments. To ensure that we provide you with an accurate loan assessment and set you up for financial success on your home loan journey, we need to evaluate your living expenditure and understand your financial situation as best we can.
What do we pass on to the lender?
Every lender has different minimum expenditure thresholds and can request different requirements to verify your living expenditure. Most commonly, lenders will utilise the declared living expenditure from our calculations. However, they can also request 30 days, or 90 days of bank statements to conduct their own assessment.