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How your daily spending is impacting your borrowing power

How your daily spending is impacting your borrowing power

Oct 4, 2022 | Borrowing Power

Your morning coffee, a quick lunch with your colleagues, ingredients for dinner, your Netflix subscription… ordinary day-to-day expenses, but did you know that these can considerably reduce the amount you are eligible to borrow, even if you are a high income earner?

If you’re planning to buy a home, now might be the time to Spring clean your expenses and set yourself a weekly budget and here’s why:

Why do lenders care about living expenses?

Mortgage brokers and lenders are required to meet ‘responsible lending’ guidelines under the National Consumer Credit Protection Act (NCCP). These guidelines are designed to ensure that a borrower can afford to make the repayments on their loan without suffering ‘substantial hardship’.

This means, by law, all mortgage brokers and lenders must ensure that you have plenty of money left over from your income to repay your loan after you have covered your regular financial commitments.

What are living expenses?

A living expense is defined as anything that you spend your money on. Your morning coffee, Netflix subscription, monthly dinner out with friends and gym membership all count – even if you don’t see them as essential or could easily live without them.

When applying for a loan, we have to perform a thorough living expense and income assessment which determines your true financial position – and all of these expenses are included.

According to a 2018 survey by UBank, 86% of Australians don’t know how much money they spend every month on their living expenses – and those small expenses can quickly add up.

Without tracking your purchases, it’s easy to spend more than you earn without even realising – especially if you use a credit card.

But what if I plan to change my spending habits?

You might think “once I buy a property I’ll….”, but to most lenders, all that matters is how you’re spending money now.

Tips for controlling your living expenses

In order to control your living expenses, you first need to know where your money is going.

ASIC have a free MoneySmart Budget Planner that is a great place to start and it can be downloaded here. Another great tool from ASIC is the MoneySmart TrackMySpend app which helps you to record your weekly household budget, nominate spending limits, separate ‘needs’ from ‘wants’ and kickstart your savings goals.

How do we perform a living expenses assessment?

As mentioned, as part of the borrowing process, we need to conduct a thorough living expenses assessment. To do this, we’ll provide you with a Needs Analysis Questionnaire to help you work out your living expenses.

These expenses are divided into simple categories, including:

  • Childcare
    Including formal day care, nannies and occasional babysitters or childminding services.
  • Personal Care
    Clothing, footwear, cosmetics, personal hygiene products, hairdressing, manicures, massages etc.
  • Education
    All educational costs/fees for the borrower and any dependents, including books, uniforms, equipment and excursions.
  • Groceries
    This includes meat, fruit, vegetables and anything you might buy from a supermarket, including cleaning products.
  • Insurance
    This includes health, home, car, life, pet and all other insurances you may have.
  • Medical
    Doctors visits, dental care, pharmaceutical prescriptions, optical etc.
  • Utilities and Home Expenses
    Gas, water, electricity, rates, taxes, levies and any other costs for running your own home.
  • Entertainment
    Movie tickets, take away food, club memberships, gifts, holidays, hobbies and all recreational expenses.
  • Connections
    Includes expenses such as mobile phone plans, internet, home phones, magazine subscriptions, streaming services etc.
  • Transport
    Including personal vehicle expenses like petrol, tolls, insurance and car registration as well as public transport, car parking, car servicing and maintenance.
  • Rent
    This is for rent on a property that you live, board (if you are living with your parents or renting a room) or similar housing costs.
    Note: If you are buying a home you intend to occupy, rental expenses are not included as part of your living expenses assessment.
  • Investment Property Expenses
    Including any costs you are responsible for paying, such as council rates, insurance, property management fees, taxes and levies, body corporate and strata fees, maintenance etc.
  • Other
    All other expenses that do not fit into the above categories.

When should I cut back on expenses?

If you’re planning on purchasing a property, the best time to start is now. Regardless of whether you’re purchasing a home for yourself or an investment, it’s important to know how much you’re spending and where.

Remember that a lender will only give you a loan for an amount you can afford to repay, so cutting back on your everyday spending could give you increased borrowing power and will maximise the chances of your loan getting approved the first time.

Where do I start?

We are happy to run through your living expenses and help you find ways to budget and increase your borrowing power. Just contact our team via the website here, or give us a call on (02) 9095 6888.

8 Christmas Spending Tips to Avoid a Financial Hangover in the New Year

8 Christmas Spending Tips to Avoid a Financial Hangover in the New Year

Dec 1, 2021 | Uncategorized

It has been a year – and with Christmas and the silly season upon us, it’s tempting to throw caution to the wind and go all out – but do you really want to end up with a financial hangover when those credit card bills roll around?

We want to make it easy for you to enjoy the Christmas season without ending up with a financial hangover in the New Year with 8 easy to follow spending tips.

  • Set a Budget for Christmas   We’re starting with the b-word because we know it’s the least popular – but there’s a reason why budgets work.

    When you have a budget in place, you’re more aware of how much you’re spending and what you’re spending money on so you can make better decisions.

    A lack of planning is your savings account’s worst enemy, so draw up a budget for your Christmas spending. This should include everything from the gifts under the tree to the food, drinks and money you’ll spend socialising during the silly season.

    Once you’ve worked out how much you can afford to spend, you have more freedom to enjoy all of the things the Christmas season brings.

    Pro Tip! If you’re the type of person who leaves for a night out with a strict budget in mind, but tends to keep tapping that credit card round after round, do yourself a favour and leave the cards at home and bring cash instead.
  • Pay off Credit Cards Quickly   If you use a credit card to finance your Christmas spending, be sure to pay off the balance in full when the bill arrives in the New Year.

    Credit cards are generally an expensive way to borrow money so it’s important that you’re not being lumped with extra interest or fees.

    If you’re taking advantage of a credit card offer, make sure you read the fine print and know the end dates so you’re not stuck with a nasty surprise in the new year.

  • Keep a Running Total   You’ve got a budget, but it’s easy to set and forget.
    Track your expenses as you go so you don’t end up overspending and ruining your budget for the month (or for the months after!).

    It could be as simple as keeping a running total in the notes section of your phone or using a budgeting app.

  • Try and Reduce Spending in Other Areas   Is there anything you can spend less on in December to make up for spending on gifts or socialising? Have a look at your budget and see what areas you could be spending less in.

    Pro Tip! Get ready for Christmas spending in advance by adding a Christmas “sinking fund” to your monthly budget. By putting aside some money each month, you know exactly how much you have to spend and don’t have to sacrifice other spending in December.

  • Make More Money   Wait a minute, stay with us!

    Whilst it would be great it all of our bosses gave us some extra Christmas cash, there are other ways you can make more money for the Christmas season.

    Try decluttering at home and selling some unwanted items on Facebook marketplace – or maybe you can use some time on your weekends to do a few AirTasker tasks or pick up a few Uber Eats orders.

    Love pets? Maybe there’s someone in your area looking for a pet sitter over the Christmas break.

  • Prioritise Your Existing Financial Commitments   Don’t forget about your existing financial commitments. Your loan still needs to be paid, utility bills still come in and credit card payments will still be due.

    Avoid splashing out on Christmas spending at the expense of your existing financial obligations.

  • Try Not to Dip Into Your Savings   It can be tempting to dip into your savings to afford the Christmas you’ve been dreaming of, but whilst it might seem like a good idea now, it can actually set you back in the new year.

    If you can avoid it, try to leave your savings or emergency fund intact for when you really need it.

  • Spread Out Your Spending   Instead of leaving all of your Christmas shopping to the last minute, spread your Christmas spending across the weeks leading up to Christmas to lessen the financial strain.

    Try Christmas shopping earlier to take advantage of different sale offers like Black Friday that could save you hundreds. Planning your Christmas menu in advance also allows you to shop the specials in the weeks leading up to Christmas, saving you more money in the long run.