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One in four homeowners would fail mortgage test

New bank tests will scrutinise living expenses

One in four homeowners given home loans last year would fail new bank tests if they came into effect today, according to a new broker survey.

Extravagant spending habits will work against mortgage applicants as banks increase their scrutiny on actual living expenses.

Lenders are replacing the traditional household expenditure test with increased analysis of how much applicants spend in restaurants, on Netflix or even tollroads, reports The Gympie Times.

And according to the survey of brokers, a massive 41 per cent believe 25 per cent of last year’s mortgage holders would fail the new living expenses test.

“The reality is, it has become a lot harder to secure a new home loan or refinance an existing one. Banks are scrutinising everything, whether it’s how much borrowers are spending on tolls, Netflix, or ASOS,” said Siobhan Hayden, HashChing’s chief operating officer.

“This is because lenders are tightening their credit policies and shining an unprecedentedly harsh spotlight on applicants’ living expenses.

“Reviewing a loan applicant’s living expenses is a rational metric to assess suitability for the loan, and doing so should provide more protections for both banks and borrowers.

The survey comes amidst widespread tightening of lending standards making it more difficult for house hunters to secure a home loan. Rising mortgage rates are also hurting mortgage holders. The move recent move by two of the big six home lenders to raise variable home loan rates has also put pressure on homeowners.

Tightened lending standards means existing homeowners would not qualify for their current mortgage today leaving them unable to refinance and stuck with their existing rate.

The survey comes one day after Corelogic’s Home Value Index revealed yesterday that Australian home prices fell for an eleventh consecutive month.

According to the Index, Australia’s median home price fell 0.3%, adding to a 0.6% drop recorded previously in July, taking the decline over the past three months to 1.1%, leaving the decline over the past year at 2%.

However, in order to take advantage of falling house prices, borrowers should seek financial advice to understand the recent changes to lending.

The Reserve Bank will make its September decision on interest rates today, when it is expected to keep the official cash rate steady at a record low 1.5%.

Also read: House prices continue the decline across the country

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