How Netflix, pizza and a bottle of wine could derail your home loan application

One of the big contributing factors in how much a bank will lend you to buy a home, is living expenses. Your broker (and lender) needs to know what you spend each week on groceries, takeaway, coffee, gym memberships and phone bills, for example, so they can subtract that from your earnings and work out how much you can safely afford to pay back. In 2017, UBS estimated 80% of all Australian home loans were approved using the Household Expenditure Measure, or “HEMs” as most brokers refer to it, which uses data from the Australian Bureau of Statistics and calculates a figure based on whether you’re single, a couple or a family applying for the loan, your location and the amount you spend on living expenses.

The HEM method

The royal commission into the banking sector questioned the use of HEM and found that for many people it isn’t an accurate reading of most people’s living expenses and actually seriously falls short. “While the HEM can have some utility when assessing serviceability (of a loan) — that is to say, in assessing whether a particular consumer is likely to experience substantial hardship as a result of meeting their obligation to repay a line of credit — the measure should not and cannot be used as a substitute for inquiries or verification,” the commission report stated. Since then the corporate regulator, ASIC, has followed up with legal action and provided updated guidance to brokers and lenders on how to use HEM. For example for first home buyers it can be useful to provide an estimate of expenses, as expenses significantly change in making the move to homeownership. However HEM does not include some types of expenses such as health insurance, overseas travel or private school fees. So HEM is not currently a complete solution and your total expenditure will need to be considered by your broker to work out your living expenses. Photo by Thibault Penin on Unsplash ### Watch (out for) Netflix While some home buyers are savvy about paying off credit card debt and car loans prior to applying for a home loan, others are failing to disclose how much they actually spend each week on things like Uber Eats, Netflix and Afterpay purchases. Certainly, when we asked one of our brokers, Kym, about this very topic, she had a lot to say. “I’m feeling frustrated,” Kym said. “I have three loans sitting on my desk and none of them can go ahead because of their living expenses. Some have no idea of the impact that their spending has on their ability to get a loan and some think that they will just cut back once they take on the debt. The message is just not getting through!” Some of the problem lies in the fact that when many home buyers hear the term living expenses they think of things like internet, phone bills, weekly groceries and maybe their gym membership. They forget that living expenses also refers to subscriptions to Stan and Amazon, to wine and cigarettes and pizza, to bulk family purchases like nappies and formula, to daycare and visits to the vet, weekend ferry rides, trips to the dentist and new glasses. Photo by Anh Nguyen on Unsplash### Do you really need to buy a salad… every day? Kym says in order for home buyers to show they can afford a loan, the key things they should do are:

  • Cut back on discretionary spending: “This means things like takeaway – yes that Friday night Thai meal, yes that McDonalds drive through on the weekend and yes that salad you buy every day for lunch.”
  • Stop spending so much online: “Sometimes I don’t think people realise how much they spend on clothes, toys and books online. Just because it’s not in your hand immediately, you still bought it!”
  • Entertain at home more: “Sure a night out at the movies or a nice restaurant once in a while isn’t going to break the bank, but if you’re doing it three times a week then you need to cut back. Try watching TV at home and cooking a nice meal instead.”
  • Be aware just how much you’re spending on small items like coffee, wine and cigarettes: “$4 a day on a coffee or $15 a week on a bottle of wine may not seem like much, but it does add up. If you can forgo the bought coffee, you’ll save yourself almost $1,500 a year.” While there is no hard and fast rule about how much people should be limiting their living expenses to, Kym says that past spending habits that show up in your transaction history will be taken into account by lenders as well as the HEM benchmark. “Lenders are looking for signs that you can service a loan and any additional expense counts towards what you can and can’t borrow,” she says. “A couple of tips my parents drilled into me from a young age, which I’m grateful that I (eventually) listened to are:
  • Cash is king‘… so basically, if you can’t afford to pay your credit card off each month, then you can’t afford it (yes, I know it’s harder than it sounds, but it just takes good discipline);
  • and always aim to save a minimum of 30% of your pay, irrespective of what you earn.” Here is UNO’s checklist of items that fall into the “living expenses” category. You can use your bank transactions and credit card statements as a guide to work out how much you’re spending each week / month. ASIC also provide a budget planner that you can use for free through their MoneySmart website. This allows you to go through all your expenses in detail and work out where your money is going. And remember, if you have any questions or need some advice about any of this stuff, the team at UNO is here to help. Get in touch with uno or book in a quick call with our customer care teamBook a call in with UNO

Book Call Now

UNO home loans

Need help with your home loan?

UNO Brokers are available night and day for a quick review or your situation and bring expertise that will support better decision making that will save you time and money. Book in a quick call when it suits your busy schedule

Get Started

Related Articles

TESTIMONIALS

What our customers are saying

Sally Mackenzie
February 19, 2024
We chose Uno Home Loans from their impressive web site knowing we were going to find it hard, on many fronts, to qualify for a home loan. We were incredibly fortunate to be assigned Mike Parsons as right from the get-go, despite the complexities, he hit the ground running for us. He was incredibly knowledgeable, with years of experience but what was immediately apparent and impressive was that he was totally invested in getting us over the line, doing absolutely everything possible, including working around the clock. Despite it being a relatively small loan in the order of things, Mike never missed a beat, getting docs ready, following up and answering every request from the proposed funder immediately. He kept us informed on progress the minute anything happened, and again if anything needed to be done, he was right on it. In short, we highly recommend Uno, and Mike, knowing what a remarkable job he did, over many weeks, to get us our loan. He got us a great deal, with far better rates than we expected, so we couldn't be happier. In fact, without doubt, you'd be hard pressed to find a more personable, sharp, hard working, dedicated professional who clearly prides himself on getting his customers standout results.
Read more
Rod
February 13, 2024
Scott and his team were just A-mazing. We felt supported through the whole process with the greatest quality and care. Every question answered right in time, or even before we asked. The process was smooth and we got the best outcomes we could have wished for.
Read more
Angela Biddle
February 6, 2024
Our mortgage recently came up for renewal, and with interest rates skyrocketing we were looking for ways to minimise the impact. Michael and his team were proactive and attentive. Michael spent time with us to understand our circumstances. He found mortgage options that worked with our current financial situation and longer investment plans. He presented clear options, providing guidance where needed. He and his team were helpful and responsive - streamlining the process and keeping us updated through the negotiations. In the end, Uno did the heavy lifting and secured a significantly better rate than our current bank offered, all with friendly, personal service. We would highly recommend UNO Home Loans.
Read more
Fotis Bikas
January 15, 2024
I cannot help but congratulate Scott Wilkinson of UNO Home Loans for being an absolute credit to both his company and the entire loans industry. Scott is a truly rare gem of a broker in that he will not only go the extra mile to achieve for each customer the very best deal, but his knowledge of all and sundry within the industry is unsurpassed (you will see what I mean if you speak to him). Additionally, Scott has a clear passion for imparting his wealth of information with each customer, whereas the conversation with most other brokers would simply be over if they could not get you the best deal. For me, Scott Wilkinson of UNO Home Loans stands head and shoulders above the competition and I feel privileged to benefit both from his expertise and professionalism whenever it is time for a refinance or new loan.
Read more
Tomoharu Matsui
January 11, 2024
Michael Parsons helped me a lot when it's difficult to establish my capabilities in loan.
Read more
Gillian Kearon
January 9, 2024
I highly recommend Mike Parsons as a mortgage broker. I couldn't fault the service provided by UNO. Thanks Mike!
Read more
Taner T
December 20, 2023
Thank you Eren Tan for the amazing service and support. Our Loan was a little tricky and complex for other lenders but Eren managed to get it over the line in record time. His professionalism and dedication to our needs was exceptional. If you need a Loan no matter how complex your situation, make sure you contact Eren at UNO Home Loans.
Read more
Karaipu Brown
December 20, 2023
Buying & selling a house at the same time is very stressful but Scott Wilkinson from UNO home loans made sure we knew what was happening & took most of the stress away. He always kept us up to date and if we had a concern or wanted clarification on something we were able to call him, if he didn’t know the answer straight away he will find out and contact us back.. now we are enjoying our new house and turning it into a home :)
Read more
Chris Anderson
December 18, 2023
Just completed my first loan with UNO which was so much easier than with other other brokers I have used in the past. Our broker MIKE PARSONS always had time for me and broke things down for me in the simplest of terms and was very patient with my silly questions and my constant changing of plans. I wish I had used them in the past as I wouldn't be in the situation I'm in now. Can't recommend them highly enough. Thanks UNO and Thanks MIKE 😊
Read more
Stephen Broomfield
December 11, 2023
To be able to recommend Scott Wilkinson for your mortgage broker was a privilege. We had deals fall through but Scott supported, guided and stuck with us, proper partnership. The whole team at UNO helped us and supported us right through to after settlement. Made sure everything was correct and how we are progressing. Communication was amazing and straightforward and easy to understand. Transparent. We can not Recommend Scott and the team as Uno high enough. Use UNO with confidence.
Read more
Tarek Hussain
December 6, 2023
Can't thank Amy enough for her hard work, dedication and determination on getting multiple loans completed for me. I wouldn't hesitate in recommending Amy and the Uno team to any of my associates. Will definitely be back in the near future!
Read more
Linda
November 3, 2023
If you’re looking for a trustworthy, thorough, reliable & knowledgeable Mortgage Broker then you must call Anita Callaghan! I can’t even imagine how stressful this process would’ve been without her. Anita went above and beyond to make sure she answered every question, responded to every text (even on weekends/after hours), and followed up on every detail to ensure we had all the info we needed. Anita is a true people person who is warm, empathetic, kind and supportive. You can tell she loves helping people and loves what she does, which is probably why she’s so good at it! Can’t thank you enough Anita, or recommend you more highly! You’re the best!
Read more