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Banking Royal Commission and Lender Assessment Changes
The Banking Royal Commission is certainly causing waves in lending circles which we feel will have a wide spread impact to you as a borrower. Some of the changes we are seeing relate to living expenses and budgeting. Trying to have all your eggs in one basket may work against you.
Now is a time when segmenting your budget correctly could improve your borrowing capacity, and hence your ability to obtain a finance solution. Let's explore a debt consolidation case study to see how budgeting differently can help improve your finances and cash flow.
Debt Consolidation Case Study: How your budget can affect a Loan Settlement
These clients were affected by one of them having a health problem in the past. This caused some time off work and credit cards and other bills to spiral. We were employed to consolidate the debts into the home loan which had a small mortgage arrears and some late payment history.
Debt Consolidation Loan Assessment
On assessment there was sufficient income to apply for a loan that could refinance the home loan and a debt consolidation. The lenders allowed household expenditure for 2 adults and 1 child was $2749 per month. The house hold income is $7450 net per month which gives a surplus of $4701 per month to make the mortgage payment.
We have seen lenders now conducting an assessment of household budgets via the clients bank account statements. In this case it shows a substantially higher living expense for food. It turns out that the client has two adult children living with them contributing to the household by paying gas and electricity and giving some board. The figures work well in the household budget, and is in the applicants benefit, however the lender needs to see some change before proceeding with the loan. This is because the borrowing capacity is severely affected. The reduced borrowing capacity is caused because of:
- High general food expense.
- Boarder income is not acceptable income for that particular lender.
- The gas and electricity payments by children would cease if they left the household. This would mean the payments would revert to applicant.
Debt Consolidation and Budgeting Solution:
The loan is postponed for 1 month to establish the following changes to budget:
- Children to stop gas and electricity payments and revert payment to point 2.
- Children to buy own food and reduce house hold food expense.
- Surplus funds by children to be paid to borrower as board though it could not be used for income, only to reduce food bill.
Once the budget had been altered, we obtained a monthly savings statement to ensure the budgeting changes have been implemented and proceed with the loan application.
This is a very real change to lending and in a his clients case did not have a negative affect on their circumstance. Though in more severe cases of arrears and credit problems, the changes and delay in the loan application could result in the loss of the family home, or an increase in the severity of the credit problems. This is where a mortgage arrears expert can negotiate and provide experienced advice.
Budgeting Summary and Conclusion
We see some changes need to be made to lender assessment of budgeting and some due care in establishing loan facilities as a result. However, consideration needs to be made to the detrimental affects of any change and avoid knee jerk reactions - a well thought out approach to budget changes needs to be considered before implementing any plan.
Potentially in cases similar to that above, a lender might approve the use of a managed budgeting program throughout the loan process. This would allow a loan to proceed where strict deadlines are present. Problems could easily occur in cases or mortgage arrears, debt consolidation and especially with property purchases where delays could result in loss of a large purchase deposit.
If you have any questions or issues resulting from the Royal Commission changes, feel free to make contact to discuss your challenges on 1300796850, or submit an enquiry below.
Let's talk about a solution that suits you