How do your living expenses impact your power to borrow for a new Camperdown home?

Posted on 18/07/2019 by Andrew Morris in Mortgage Broking
Andrew Morris
Andrew joined Sinclair Wilson in May 2017 as Mortgage Broker, having spent the past 10 years in the banking industry. With a small business background - in hospitality, no less...

You earn a good wage. You’ve studied hard and worked hard to earn well. It means you can enjoy life and satisfy your needs… which now includes your own home, in your home town of Camperdown.

Given your good earnings, you should have plenty of borrowing power… right?

We-ell… not necessarily.

Many potential lenders who come to us are surprised to learn that how much they spend on day-to-day living impacts the amount they are eligible to borrow for a home loan – even those earning a high income.

It’s important to know that if you’re starting to consider adding a home to your list of ‘must-buys’, it could be a good idea to cut back on some of life’s luxuries for a while, and set a weekly budget, so that you can plan out – and maintain – your living expenses over a six or 12 month period.

Why? We’ll outline the reasons below:

You need to be able to show that you can take care of your current, and future, financial commitments

Mortgage brokers and lenders are compelled to meet ‘responsible lending’ guidelines. These are in place to ensure a borrower can afford to repay their loan without suffering ‘substantial hardship’.

It means that mortgage brokers and lenders are  required, by law, to ensure you have adequate funds to repay your loan, AND the financial commitments you already have in place. That’s why we have to undertake a thorough living expense and income assessment to provide an accurate snapshot of your financial position well before a loan application is filled out.

Living expenses might cover more than you think

What are living expenses, anyway? The power bills? The groceries? Car loan repayments?

Yes. And more. Living expenses are, basically, anything you spend your money on. AN-Y-THING.

Your $75-a-week gym membership. Your daily $5 on-the-way-to-work coffee. The salad roll and bottle of water you get every lunchtime, without fail. And everything in between.

Research shows that the overwhelming majority of Australians (as in, more than 85%), do not realise how much money they spend each month on these ‘living expenses’.

If you don’t track your purchases, it’s easy to spend more than what you earn without even realising – especially if you use your credit or debit cards to pay for everything (out of sight, out of mind.)

How can you control your expenses?

There are plenty of tips and tricks (Excel spreadsheet being one), but we’re now in the age of apps, so see what is available on your smartphone’s platform.

A good place to start could be ASIC’s MoneySmart website. It has a budget planner and TrackMySpend app that are both handy tools for budeting and tracking where your money is going. You can even set spending limit for different categories of expenses, have a ‘wants’ category, and a ‘needs’ category, and use it to get your savings underway.

What will reducing my living expenses achieve? 

Essentially? More lending power. Eventually. Whether you’re eyeing off your first home, or next property, a lender will look at your living expenses and bases their decision on what they are sure you can afford to pay. Reigning in your day-to-day spending could help you increase the amount you can repay and, in turn, boost your borrowing power.

We have a number of systems, programs and techniques to assess and manage your living expenses, and help you find ways to budget and, eventually, increase your lending power. We can also prepare your loan application to increase your chances of your loan application being approved first-time.

Speak to our Mortgage Broking team today about where to start.