Finding It Harder To Get A Loan? | Summary and Q&A

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November 28, 2018
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Investor Motivation
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Finding It Harder To Get A Loan?

TL;DR

The Royal Commission's changes to how banks assess expenses may make it harder for people to get home loans.

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Questions & Answers

Q: How have banks assessed expenses for home loan eligibility in the past?

Banks have used the household expenditure measure of $32,400 for a family of four, excluding mortgage repayments or rent, to assess home loan eligibility.

Q: How do actual average expenditures compare to the banks' assumption?

Actual average expenditures differ significantly from the banks' assumption, suggesting that the amount banks will lend may not accurately reflect borrowers' financial situations.

Q: What will happen if banks have to consider higher expenses?

Considering higher expenses may result in a significant decrease in the amount borrowers can borrow, making it harder to get a home loan.

Q: What consequences will the Royal Commission's changes have on the banking industry?

The changes will require banks to be more responsible in lending and assess lenders' expenses in more detail, potentially leading to a reduction in borrowing capacity and making it harder for people to get loans.

Summary & Key Takeaways

  • Banks have used the household expenditure measure of $32,400 for a family of four to assess home loan eligibility, excluding mortgage repayments or rent.

  • However, actual average expenditures differ significantly from this assumption, potentially impacting the amount banks will lend.

  • If banks have to consider higher expenses, borrowers may see a significant decrease in the amount they can borrow, making it harder to get a home loan.

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