Millennials are renowned for their love of eating out in cafes and restaurants with mates despite the costs associated with hospitality.
But new bank rules could soon put a dampener on everyone’s favourite past-time.
As loan requirements become more stringent in the wake of the financial services royal commission, lenders have our spending habits under the microscope more than ever.
Otto Dargan, managing director at mortgage brokerage Home Loan Experts, joined Auction Day to talk about the latest lending changes.
“It’s definitely a lot harder to get approved for a loan, in particular, the borrowing power for investors has been reduced greatly,” he said.
There’s been a number of changes to lending rules, including a reduction in interest-only loans, but the biggest adjustment for borrowers has been the increased focus on our personal living costs, according to him.
Measuring your spending
Traditionally, lenders have estimated a borrowers ability to take out a loan using something called the Household Expenditure Measure (HEM).
For example, if there are two adults in a household, they can very broadly be expected to spend ‘X’ amount each month.
But new rules mean the banks will be taking into account costs that previously didn’t register on their map, such as eating out, online shopping, gym memberships and food delivery services.
“Now what they have to do is go through your bank statements and actually review all your spending habits and check to see if the HEM is a realistic way to assess your living expenses, or if you’re spending a lot more than that,” said Dargan.
The problem with this new system is that when people go to buy a home, they often cut down on that extra spending, making it tough for the banks to properly measure.
“Quite often, we’re seeing people with good incomes that can easily afford a $1-2 million loan, and we’re telling them you can’t borrow that much because you might be spending too much going out for dinner,” he said.
“So, this is an area where the banks are all over the place. We’re seeing a lot of differences between lenders and a lot of frustrations from borrowers as a result.”
If you’re worried about how much your brunching habits could affect your ability to get a home loan, Dargan says you should start cutting down at least three months before you go to buy.
Don’t want to give up Sunday brunch?
Alternatively, he said some lenders will allow you to make a commitment to reduce your discretionary expenses.